CBILS Success Story: £4m lifeline for a student accommodation business
Arranging a £4 million lifeline for a student accommodation business
TL:DR All kinds of business have been hit hard by Covid. When a major student accommodation business found that their income had fallen with students not taking up accommodation, the bank would not offer the scale of funding they needed. They turned to Rangewell to provide £4million - with nothing to repay for the first year.
Urgent update: The government has announced an extension to the deadline for CBILS applications, which will now remain open until November 30th. Don’t miss out on the government-backed funding you must have - call us now.
Covid continues to disrupt businesses of all kinds and the lockdown has meant that some students are not taking up places - which is posing a strain on those businesses which depend on providing student accommodation.
With cashflow forecasts wrecked, many are looking around for ways to deal with cash shortfalls that derail business plans.
“We have a purpose-built accommodation block serving some major London colleges. Its total value is around £14 million - which gives you an idea of the scale of operation we are running.”
Student accommodation has changed a great deal in recent years. Where previous generations of students were content with rooms in shared houses and making do with inferior conditions, today’s students expect much higher standards - equivalent to hotel rooms or small apartment homes. Many - particularly those from overseas - are prepared to pay substantial sums for good accommodation with facilities such as common rooms and catering facilities, close to their colleges in a fashionable part of London.
This has led to the rise of student accommodation blocks which may be converted from office buildings or purpose-built. The costs for this type of development are high, and full occupancy each term is usually easy to achieve - and vital for the success of the businesses.
The coming of Covid has disrupted the student accommodation market considerably.
“We have heard that many students are putting back their studies, and some colleges are providing remote tuition. That means our rooms are far from full, and not bringing in the revenues predicted.
"The costs of operating the student halls are high. There are wages to pay - staff include those with security responsibilities, who cannot simply be furloughed. But the main drain on the business is the finance for the buildings themselves.
“We are faced with costs of around £4 million a year, with overheads and finance repayments. In a normal year, we will easily cover that - but of course, this has not been a normal year.”
The business went to their bank to ask about funding from the government schemes - particularly the Coronavirus Business Interruption Loan Scheme - or CBILS.
CBILS was set up by the Government to provide loans of up to £5million to businesses struggling from Covid-19. The scheme has recently been extended to repayment terms of up to 10 years.
However, with the crisis to deal with, the main attraction of funding under CBILS is that businesses who take out this type of funding will have nothing to repay for the first 12 months. The government will take care of interest repayments during this time, providing a lifeline for businesses which have found their cashflow turned off by both Covid and lockdown.
CBILS are provided by banks and other lenders with government support. They can have their shortcomings - as a large-scale funding product, they can take time to arrange - and when the scheme was announced back in April, delays of a month or more were not unusual. This has been reduced, however, as the banks and other lenders providing the schemes have found their feet.
But two other shortcomings remain. Firstly, interest rates will depend on the lender which can mean that a CBILS loan from your bank may not be the most cost-effective option and, secondly, the bank may sometimes refuse to help provide the funds you need.
“The bank manager seemed to be helpful, but when we saw him, he looked at our figures and said that he was sorry, but he could not help us - we had already exceeded our credit limit with the bank.”
The banks have little flexibility in their decision-making. They must align all lending to the guidelines laid down centrally. In the case of our client, existing borrowing meant that they had already borrowed more than the bank was prepared to lend now - a further loan was out of the question.
The bank was concerned about the ability of the business to repay, given the uncertainty of the business model. Talk of a blanket ban on lending to the hotel sector in light of Covid restrictions was mentioned - and it was possible to take the view that the business was a type of hotel. .
The business owners approached Rangewell for a solution
We have found that many businesses need help, not just with getting funding to help them through the crisis but to understand the most appropriate type of government-supported funding to use. As the UK leaders in finding business funding solutions for the SME sector, we are in the ideal position to help whenever a business’s usual bank will not.
It looked, at first, as though there really was no way to provide the hotel business with the funding needed via CBILS. The government had left the decision up to individual lenders, and lenders had all tightened up their lending rules in the wake of Covid.
However, we were determined to find a solution which would give our clients the lifeline he needed.
We looked at lenders of all types and understood that while none of the institutional lenders offering CBILS loan would be prepared to help - there might be an alternative.
We contacted a Peer to Peer lender
Peer-to-peer (or P2P) lending is a relatively new idea in business finance. It removes the need for - and the costs of - a bank and lets individuals or businesses lend money to other individuals and businesses through online marketplaces. By providing an alternative to banks, it offers scope for funding outside the cast-iron rules banks are forced to set.
Although costs for borrowing can be higher than may be provided by mainstream banks, a P2P lender may be able to offer a loan when the more established lenders are unwilling to help.
Some of the larger P2P providers have arranged to offer funding under CBILs, using the government’s guarantee to underwrite their decisions, although they will continue to work according to their established business model.
We approached our contact at a P2P lender and explained the challenges the client was facing.
Together with their experts, we were able to develop a loan which would give our client the funding he needed.
By making use of the government's underwriting guarantee under CBILS the lender was able to provide a loan.
The funding Rangewell secured
£4million over 15 years 9 % interest
Repayment holiday for the first 12 months
Rangewell finds the financial solutions that your business needs
Whatever your business sector, Covid means new financial challenges. The Rangewell Covid Crisis Service is designed to help find new solutions.
Using a P2P lender as an alternative to more conventional lenders is just one example of how we work to find solutions.
If you need funding - to deal with Covid or with any other challenge - simply call us and one of our Business Funding Experts will be able to discuss the options, and work out the most cost-effective ways to provide the funding you need.
We are independent and we know the entire lending market. That means we can take a view that will put your interests first - and if you have not been successful because of your bank’s lending policies, we will work to find one that is more sympathetic.
Then we will search the entire lending market to find the most appropriate lender and to make the application for the loan you need. Calling us saves you valuable time - and it could help you save your business
Keeping your business afloat with help from Rangewell
- Individual arrangements tailored to your circumstances
- Adverse Credit – no problem
- Repayments geared to your turnover
- Expertise in funding for your sector
- Bounceback and CBILS expertise