CBILS Case study: Funding for a Furniture Manufacturer
TL:DR When a furniture manufacturer found that he had run into cash flow problems, he discovered that they were made worse because of his existing lending commitments. Despite his exposure to his existing debt, we found a way to provide £250,000 with CBILS funding.
Urgent update: The government has announced an extension to the deadline for CBILS applications, which will now remain open until the end of March 2021. Don’t miss out on the government-backed funding you must have - call us now.
Covid has meant challenges to every business sector. Even those sectors such as manufacturing - where it is impossible to work remotely but entirely possible to work safely by careful process planning - have suffered because, in many cases, their customer base is no longer buying.
“Obviously, you can't have people working from home when they need to work on a production line. After a few issues, we found ways for our workforce to socially distance and use PPE, so we should be able to run the production floor as normal. We have a modern factory and setting up perspex barriers around workstations and the like was not too much a problem.
We even had the supply problems cracked. We had a few missed deliveries from board suppliers to start with, but that all got sorted out. For a while, it looked like we could carry on with business as usual - but then the orders started getting cancelled.”
The business, based on an industrial estate on the outskirts of London, built furniture - mainly for domestic and commercial users, providing a range of tables, chairs, desks and cabinets. With a range of advanced machines, including CAD equipment, they were able to provide both a standard range and custom orders as required, and business was brisk.
They had enjoyed a turnover of £1million last year and were looking forward to an even busier year in 2020.
“You can make furniture with the old fashioned crafts approach - but you can’t make money doing it. We had invested in the production floor and we have some advanced machines. It gives us a competitive edge when it comes to volume, and to versatility too - if we need a custom design for a large order, we can just get the computer to take care of the design and spec. Our designs are variations on a theme, and our people know how to put it all together.”
It seemed to be a winning formula for a profitable business - until the lockdown. Orders were being cancelled as the shops stocking their ranges shut their doors, and refurbishing projects of all sizes were put on hold for the duration of the emergency.
A growing flood of orders slowed to a trickle, and both machines and workforce were standing idle.
“Of course, we did what we could to cut costs. We furloughed as many of our team as we could and took advantage of the rates and VAT holidays. But I sat down with the accountant and we saw that it was not going to be enough.”
The problem was the machines that had given the business its competitive edge. They had been a major investment, and they paid for themselves when they were working - but now that they were standing idle, the repayments on the funding required to buy them was more than the business could afford.
Together with the cost of the factory premises, which were leased, the business was left with a substantial shortfall in cash. The business did what it could to reduce outgoings but there were substantial overheads to pay, with premises to pay for and a wide variety of equipment that needed finance agreements serviced. Simply making payments on the existing debt was fast becoming a problem when the volume of business started to decline with Covid.
The business saw that the government's Coronavirus Business Interruption Loan Scheme - or CBILS - could be a cost-effective solution to help provide the funds it needed to stay afloat.
CBILS is a government-backed scheme which was set up to provide financial support to smaller businesses across the UK that were, and still are, losing revenue and seeing their cashflow disrupted as a result of the COVID-19 outbreak. The scheme can provide loans of up to £5million, crucially, with nothing to repay for the first 12 months.
It can be the ideal solution for businesses of all kinds that find that their orders have been put on hold because of the lockdown.
However, there was a problem. CBILS is provided by commercial lenders, and although the government scheme will reduce the risk of lending, it cannot altogether remove it.
Lenders will, therefore, lend under their own lending criteria. When the business owner approached his existing lender for help, he found they would not provide additional funds - even under CBILS.
What was the problem?
Their existing lenders were a Peer-to-peer provider. Peer-to-peer, or P2P lending, is an innovative practice that can change the playing field when it comes to raising money.
P2P allows individuals or businesses to lend money to other individuals and businesses through an online service. P2P websites work like marketplaces, bringing together people or businesses that want to lend money with those that want a loan.
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 those provided by mainstream banks, a P2P lender may be able to offer a loan when the more established banks are unable to.
With many banks reluctant to provide funding for start-up and newer businesses, an increasing number of business owners turn to P2P lenders for the funding they need. Costs may be a little higher than a tier one, or high-street bank, but the ability to access funding essential to turn a business idea into a business makes it more than worthwhile to pay a premium - at least until the business is fully established.
In the case of the manufacturer, the large investment in production equipment had been mainly funded by Asset Finance provided by a major P2P lender.
“They had been generous when we had set up the business - I hoped they would be again.”
He had reasons to be optimistic. 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.
However, the owner was disappointed by the reaction of the lender.
“They looked at our figures and explained that they could not provide us with any more cash. We had already reached their lending limits under the new conditions forced on them by Covid.”
The lender wanted to be helpful, but their hands were tied by their own lending rules. The business already had substantial borrowing and under their procedures, there was little margin for more.
Dealing with a crisis
With payments due on his existing loans, the lender could see no way to advance additional funds. Their existing lending was secured on the equipment itself, but with no indication of when the Covid crisis would be over and the business could get back to work and into profit, there was no guarantee that any additional funding could be repaid.
The business owner turned to Rangewell for a solution to his funding crisis.
We looked at the problems they were facing and saw that getting a CBILS loan was going to be key to the survival of the business.
We understood the problem was the existing debts which, as a relatively new business, were high compared to the £1million turnover the business had enjoyed last year. Most lenders took the view that the business would be unable to meet their lending requirements - which had been made more exacting since the Covid emergency.
We saw the solution could be provided by re-looking at the business and providing a restructuring of the current debts.
By reorganising the Asset Finance arrangements, we were able to reduce the outgoings, reducing our clients existing commitments and freeing up cash to allow him to commit to a repayment plan for additional funds.
We then approached a lender who specialises in lending for more challenging business situations. By making use of the government's underwriting guarantee under CBILS, the lender was able to provide a loan of £250,000. The interest rate of 7% was high - but as a lifeline for the business, it was easy for our client to see why it was necessary.
This kind of sum can usually be arranged under CBILS without a personal guarantee. However, in this case, the questions about the viability of the business prompted the lender to stipulate some conditions - but crucially they would be prepared to provide the funds required.
By making use of the government's guarantee under CBILS, the lender was able to provide the loan with 5 years to repay - after the initial 12 month repayment holiday.
“£250,000 is the help we need. We can stay in business until the customers start buying furniture again. We know that could be months away, but thanks to CBILS I don’t need to pay anything for the finance for a whole year.”
The solution we provided
We have found that many smaller businesses will need help, not simply to get through the crisis but to access the funding the government has promised. As the UK leaders in business funding for the SME sector, we are in the ideal position to help.
“Rangewell’s expertise helped me at every stage. Restructuring our finances, which lender to approach, how to complete the application, what supporting documents I should need - and made sure I got the funds I needed.
CBILS is ideal for us. It makes borrowing a lifeline affordable - especially as there are no repayments to make in the first year.”
The funding Rangewell secured
£250,000 over 60 months 7 % interest
Repayment holiday for the first 12 months
Rangewell finds the financial solutions that your business needs
Whatever business sector you work in, Covid will mean new financial challenges. The Rangewell Covid Crisis service is designed to provide the right solution.
Business Funding Experts will be able to discuss your options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business conditions are presenting you with.
We are independent and we know the entire lending market. That means we take a view that puts 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.
At Rangewell we work to find the financial solutions you need - not excuses
Call us. We can help you see if a CBILS or Bounce Back Loan might provide the answers you need and streamline your application - or whether there is another form of funding which could provide a better answer for your particular circumstances.
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 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