Cash Flow Solutions | Orchard Business Finance

Recovery Loan Scheme (RLS)

By cms_Orchard on April 20, 2021in Asset Finance, Cash Flow Solutions, Confidential Invoice Discounting

About The Scheme

Launched on 6 April 2021, the Recovery Loan Scheme (RLS) provides financial support to businesses across the UK as they recover and grow following the coronavirus pandemic.

You can apply to the scheme if Covid-19 has affected your business. You can use the finance for any legitimate business purpose – including managing cash-flow, investment and growth. However, you must be able to afford to take out additional debt finance for these purposes.

If your business has already borrowed from any of the other coronavirus loan schemes – namely:

the Bounce Back Loan Scheme (BBLS)
the Coronavirus Business Interruption Loan Scheme (CBILS)
the Coronavirus Large Business Interruption Loan Scheme (CLBILS)

RLS is still open to you, although the amount you have borrowed under an existing scheme may in certain circumstances limit the amount you may borrow under RLS.

RLS will run until 31 December 2021, subject to review.

How it works

Lenders

The Recovery Loan Scheme will initially be available through a number of Lenders accredited by the British Business Bank. New lenders under the scheme will be listed on the British Business Bank website as they become accredited.

A key aim of the Recovery Loan Scheme is to improve the terms on offer to you, but if a lender can offer you the choice of a commercial loan on better terms, without requiring the guarantee provided by the RLS, they should do so.

It is advised that when looking to borrow, you should first approach your own finance provider. You may also consider approaching other lenders if you’re unable to access the finance you need. There are also experienced and knowledgeable brokers such as Orchard Business Finance who can help you navigate this process.

Types of finance

A lender can provide up to £10 million as one of the following facilities:

Term loan
Overdraft
Invoice finance
Asset finance

Guarantees

RLS gives the lender a government-backed guarantee against the outstanding balance of the facility. As the borrower, you are always 100% liable for the debt.

If you’re borrowing £250,000 or less

The lender won’t take any form of personal guarantee.

If you’re borrowing more than £250,000

The lender has the discretion to decide whether to take personal guarantees. However:
Above £250,000, the maximum amount that can be covered under RLS is capped at a maximum of 20% of the outstanding balance of the RLS facility after the proceeds of business assets have been applied
No personal guarantees can be held over Principal Private Residences.

How Much Can You Borrow

Working Out the Maximum You Can Apply For…

i. 2 x Annual wage bill as evidenced by 2019 Accounts. (Where the case of wage undertakings created on or after 1 January 2019, the maximum loan must not exceed the estimated annual wage bill for the first two years in operation).

ii. 25% of 2019 turnover as evidenced by 2019 Accounts.

iii. Estimation of Working Capital/Investment costs required for the forthcoming 18 months. (if your business employs over 250 employees, then this is only required for the forthcoming 12 months)

When calculating these figures, it is the smallest amount that you can apply for. As an example:

XYZ Ltd have an annual wage bill of £65,000 (2 x £65,000 = £130,000)
Annual turnover for XYZ Ltd in 2019 Accounts is £400,000 (25% = £100,000)
Estimated working capital/investment costs required = £250,000

In this example, the MAXIMUM that ABC Ltd could apply for under the Recovery Loan Scheme is £100,000

For further information and an informal conversation phone today on 01257 543013.

Coronavirus Business Interruption Loan Scheme (CBILS) – Extended

By cms_Orchard on January 7, 2021in Asset Finance, Cash Flow Solutions, Confidential Invoice Discounting, Development Finance, Selective Invoice Finance

What Is CBILS?

On 17th December 202, the Government has announced that the Coronavirus Business Interruption Loan Scheme (CBILS) will be extended until 31 March 2021.

The scheme was set up by the Government in conjunction with the British Business Bank and is supported by High Street Lenders, Specialist Lenders, Asset Lenders and Challenger Banks. There are currently over 100 hundred accredited lenders approved to offer CBILS. All loans are Government backed and guaranteed up to 80% of the facility value to encourage more lending.

CBILS provides financial support to UK businesses that are experiencing cash flow disruption or are loosing income as a result of the COVID-19 outbreak.

Since it’s launch during Lockdown 1.0. CBILS has been expanded with significant changes to the scheme’s eligibility criteria and features. As a result even more business impacted by coronavirus and those that didn’t previously qualify can access the funding they require.

Key Features

£5m Loan Facility: The maximum value of a facility provided under the scheme will be up to £5m.
Finance Terms: For Term Loans and Asset Finance Facilities are 6 years. With Overdrafts and Invoice Finance Facilities the finance terms is 3 years.
Personal Guarantees: Are not required for facilities under £250,000 and are at lender discretion above this amount. A PG will exclude principle private residence and will be capped at 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied. Insufficient security is no longer a condition to access CBILS.
80% Guarantee: The government provides the lender with a partial guarantee of 80% against the outstanding facility balance. The borrower remains 100% liable for the debt.
No Guarantee Fees For Business: There are no guarantee fees for SMEs. Lenders pay a fee to access the scheme
Interest And Fees Paid By Government For 12 Months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied charges.
Not Limited To One Application: The scheme allows you to make multiple CBILS applications subject to meeting lender underwriting criteria and responsible lending requirements. Therefore it is possible to apply for a Term Loan and separately Asset Finance or any other combination.

Eligibility

To be eligible for a CBILS facility…

The business must be UK based in its business activity.
Have an annual turnover of no more than £45 million.
Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic.
Self-certify that it has been adversely impacted by the coronavirus.

CBILS Deals We’ve Placed For Clients

Haulage Company – Invoice Finance Facility with a Term Loan added to support cash flow and growth.
Construction Company – Multiple Asset Fiance Facilities to purchase plant and equipment.
Manufacturing Company – Term Loan to consolidate existing high interest unsecured business loans.
Recruitment Company – Overdraft and Invoice Finance Facility to smooth out cash flow peaks and troughs.

For an informal discussion in confidence call Orchard Business Finance on 01257 543013.

Case Study – Confidential Invoice Discounting – Food Manufacturer

By cms_Orchard on July 28, 2020in Cash Flow Solutions, Confidential Invoice Discounting

Established specialist food manufacturing company that had recently won several new contracts with multiple retailers. Approached Orchard Business Finance for advice on how to take pressure off their cash flow and smooth out monthly peaks and troughs.

The company turnover stood at around £6 million and staffing levels fluctuated between twenty and forty staff dependent on the season. Although the company had no financial problems there was borrowing in the form of Unsecured Business Loans and Asset Finance. As a result, lenders approached direct by the Directors weren’t prepared to offer any further funding facilities.

We sat down with the Directors and talked through all aspects of their business and the pressures being experienced along with future growth plans and their requirements to grow the business. It became apparent very quickly that the cash flow problems were being caused. As the result of average customer contracted payment terms being 77 days; purchase ledger showing average payments being made on 98 days; and three crunch payment dates during the month with the first being lenders payments, the second supplier payments and finally payroll.

The Directors recognised that average payments of 98 days were the main cause of the cash flow peaks and troughs. Most importantly and despite the company being financially stable and having good contracts the Directors realised that they were financially vulnerable if they couldn’t smooth out the peaks and troughs.

As a solution we suggested Confidential Invoice Discounting as this would enable the Directors to drawdown up to 85% of the invoice value within 24 hours of it being issued. There was a level of reluctance initially as the Directors considered CID to be an expensive form of Invoice Finance. Once we explained how a CID facility operates and that it only becomes expensive if it’s used irresponsibly the Directors decided to proceed.

One of our trusted lenders offered this food manufacturing company a Confidential Invoice Discounting facility that allowed them to drawdown up to 85% of the invoice value and agreed a facility of £500,000 which also included payment protection and Director personal guarantees that were restricted.

Following a review with the Directors they are happy with the facility as they can now manage monthly supplier, finance and payroll payments with confidence. Additionally, they have been able to confidently approach other retailers and expand distribution of their product.

Spotlight On – Selective Invoice Finance

By cms_Orchard on May 21, 2020in Cash Flow Solutions

What is Selective Invoice Finance?

Selective invoice finance is an alternative to more traditional invoice finance where you must process all invoices through the facility. This type of invoice finance facility is also known as single or spot factoring. Selective invoice finance enables businesses to release funds tied up in individual unpaid invoices. By using the facility on an invoice to invoice basis, you are able to access funds quickly when and as cash injections are required.

How does it work?

It’s fairly straight forward and simple. The first step is to identify the invoice or invoices you wish to factor. Approval is then required for factoring the chosen invoices and the finance provider will confirm the fee. Dependent on your business sector you can receive up to 95% of the value of the invoice. The funds are normally available within 24 hours of invoice submission. The invoice balance less the lenders fee is paid when the customers pays the invoice in full.

What are the differences between Spot, Single and Selective Invoice Finance?

There is no difference, all these terms are used to describe Selective Invoice Finance.

What are the advantages?

Selective Invoice Finance is often used to support cash flow at key points during the month. For example, to meet payroll and supplier payments. It can also be used for the purchase of business assets or just used to smooth out cash flow peak and troughs. The funds are available quickly and you are not tied into a twelve-month contract as with more traditional Invoice Finance.

What are the disadvantages?

It can be more expensive than traditional Invoice Finance Facilities where you are tied into a twelve- month contract and must process all sales invoices through the facility.

What businesses qualify?

This varies from lender to lender but normally all trading styles qualify although there are often requirements for a minimum level of turnover or projected turnover.

Can I apply with bad credit?

You can apply with bad credit but will still need to satisfy lenders underwriting criteria.

Category: Cash Flow Solutions