CBILS Case study: A second loan for a wholesale bakery
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Taking out a second CBILS loan
TL:DR All kinds of business have been hit hard by Covid. When a wholesale bakery found that they were facing a business downturn because of the lockdown, they arranged CBILS funding. However, they had not anticipated the Covid crisis continuing and the effects of a second wave. When their bank was unable to increase their CBILS funding, they approached us at Rangewell. Despite his exposure to his existing debt, we found a way to provide an additional £250,000 with a second round of 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 January 2021. Don’t miss out on the government-backed funding you must have - call us now.
Covid has provided challenges to every business sector. Even those sectors, such as food manufacturing, have suffered - because, in many cases, their customer base is no longer buying.
Our client was a wholesale bakery, providing a wide range of bread and bread products - such as rolls and speciality loaves - for a variety of customers across the West Midlands.
Covid had meant some changes to their business.
“The food manufacturing industry can’t have remote working. Obviously, you can't have people working from home when they need to co-operate on a production line.
But of course, as a bakery, we have to operate to very high standards of hygiene anyway, and after a few issues to start with, we found ways for our workforce to socially distance and use PPE. We were confident that 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 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 problem was that people were buying fewer sandwiches thanks to lockdown. The lunchtime takeaway trade that was one of the pillars of the business disappeared overnight as the lockdown forced people to work at home, or not work at all.
The business had a broad base and had enjoyed a turnover of £1million last year. They were looking forward to an even busier year in 2020, with new contracts - but when those contracts were suddenly cut back or cancelled altogether, the owners started to look at the financial impact.
“It was a national emergency, and no-one seemed to know what the real impact was going to be. Of course, we were never in any danger of having to shut down. People will always want to eat bread, but the general consensus was that we might be going slow for around three months while the epidemic got under control. We might not fire all our ovens every day, but we should still be able to keep baking a reduced volume.
We had some cash reserves, but we thought it would be prudent to get some extra funding arranged to tide us over.”
When the government’s financial support packages started to become available, the partners immediately saw that they could be a big help. They furloughed some of their workforce and took advantage of the rates and VAT holidays. But it was the ability to borrow a substantial amount of money with a CBILS loan that seemed to be the most important piece of support.
The government's Coronavirus Business Interruption Loan Scheme - or CBILS - was designed to help businesses affected by Covid-19. Loans are provided by banks and other commercial lenders, but they are underwritten by the government.
The scheme can provide loans of up to £5million, crucially, with nothing to repay for the first 12 months.
It was seen as being the ideal solution for businesses of all kinds that found that their orders have been put on hold because of lockdown.
However, 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. There can be delays which can cause problems to borrowers with an acute cash crisis, and some lenders may prove reluctant to lend, despite the government underwriting off all loans.
When the business owner approached his existing lender for help, he found they would not provide additional funds - even under CBILS.
The bakery had acted promptly to arrange £100,000 funding under CBILS and, as one of the first businesses to take advantage of the scheme, they had been able to secure funding relatively quickly.
“We were relieved to get the support of CBILS arranged. The fact that it brought large-scale funding with no strings was great - but even better was the fact that there were no repayments to make for the first 12 months. It meant that we had the funds in our bank and no repayments to make. We were confident that we could get through the lockdown and back into full production in three or four months, and be in a position to repay the loan before the repayments started to be required.”
The ongoing funding crisis
It was a view that was common when the lockdown began, and CBILS became available, but as the months went by, it started to become clear that the problem was worse than first thought.
“People have started heading back to work - you only have to look at the roads to see the proof of that. But although it is hard to appreciate it when you are stuck in traffic, they are not going back to the way things were. Shops are open, offices are open and factories are open - but the offices are all empty. People are working from home if they can, and that means they are still not buying sandwiches at lunchtime. We are still on short working as a result.”
It started to become apparent that the epidemic was taking longer than anyone had initially anticipated.
“It is not back to business as usual - in fact, things may be getting worse.”
“We thought we would be back to work, and making an inroad into the money we had borrowed. In fact, we are still on short time, and that big cash reserve we arranged is starting to look a lot less adequate now. In fact, we are getting through it frighteningly fast - we needed more.”
The threat of Covid is continuing - and businesses that thought they had arranged sufficient funding to see themselves through the crisis are starting to discover that they may not have the financial safety net they thought would be adequate.
“They are talking about another lockdown, and that would mean that the production we have put back on will be cut back again. Looking at the figures, we realised that we needed another cash injection and this time, we wanted to call in another £150,000.”
The problem was that the bakery was not the only one facing a funding crisis caused by the prolonged Coronavirus crisis. The ease with which the first CBILS loan was arranged was deceptive. Many lenders were overwhelmed and taking months to process applications - months which could mean disaster for businesses which had run out of the funds they needed to keep trading.
Worse still for them, their bank was unwilling to increase the funding that they had already made available under CBILS. The bakery had already reached the limit of their available credit under the bank's rules - which had been made more stringent because of Covid.
The bakery owners turned to Rangewell for a solution to their new funding crisis.
We looked at the problems they were facing and saw that getting a second CBILS loan was going to be key to the survival of the business and that we would need to act quickly - because the bakery would soon be in serious trouble.
A rescue plan
We saw that the barkery’s problems had become acute, and used our connections to find a short-term loan which would provide an immediate lifeline for the business. The rate for this was high, but we believed that providing a second CBILS loan would allow the short-term loan to be paid off without incurring excessive costs.
We then approached a lender who specialises in lending for more challenging business situations. Their lending criteria were very different from the bank, and they were happy to make an additional advance.
By making use of the government's underwriting guarantee under CBILS, the lender was able to provide a loan of £150,000.
The lender required a personal guarantee and stipulated 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.
“£150,000 is the help we needed. We can stay in business until the customers start buying bread. We know that could still 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
£150,000 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 - and those challenges may not be over yet. The Rangewell Covid Crisis Service is designed to provide the solution.
Our 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 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.
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 must have 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
Talk to Rangewell – the business finance experts