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How businesses are using coronavirus loan schemes for working capital and investment

The Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) have now been extended until the end of March 2021- but business leaders should not wait until then to decide whether to take advantage of the opportunity.

We spoke to three business leaders who have accessed finance through the schemes about why they applied and how they are using the loans.

In each case, the crisis had a big impact, but the funding has also created opportunities for growth, from investing in ecommerce to buying new equipment.

Want to learn more about how to get funding through BBLS and CBILS? See our FAQs.

Great British Biscotti Co
Great British Biscotti Co brought a team member back from furlough to make a sales push

Using a Bounce Back Loan to cover manufacturing costs

The Great British Biscotti Co borrowed £50,000, the maximum the BBLS allows. It ensures the business has enough working capital to reach its next funding round, which founder Paul Rostand hopes will be the last.

“If food service sales happened, we should have been profitable towards the end of this year, but that didn’t happen due to the coronavirus,” he said.

The company expected to close an equity investment round in October. However, when Paul spoke to existing investors in June, it was clear the appetite for additional capital wasn’t there.

“Our usual sources of Enterprise Investment Scheme (EIS) funding had basically dried up due to the coronavirus. People had closed their purse strings to see what the future was going to be like,” he said.

The four-year-old company manufacturers its Italian-inspired snacks in Dorset. The impact on cafes and restaurants meant an immediate drop in demand. 

The company moved to a three weeks on and three weeks off production schedule, using the furlough scheme to cover wages during the down time.

The BBLS application was delayed several weeks – during which the business was “gasping for cash” – because it had added a director in January that the bank didn’t know about. But when that issue was sorted they got the money in 24 hours.

Paul’s target for profitability has been pushed back 12 months but, in spite of the setbacks, he expects the business to grow by 30 per cent this year and they’re making a big sales push. 

A sales person hired to target hotels in February was brought back from furlough in September and, while hotels in London remain well below capacity, the staycation market is booming. 

Terrible Merch general manager Jack McGruber
Terrible Merch used a Bounce Back Loan for working capital and investment

Developing new revenue streams

Terrible Merch general manager Jack McGruer believes it’s important to balance short-term cash requirements with investment.

The Bounce Back Loan helped the music merchandise company cover salary costs. It also gave them the opportunity to invest in onlines sales, a channel that had been neglected. 

Before coronavirus, 70 per cent of sales were made at concert venues. That’s likely to be near zero this year, but ecommerce has helped make up the drop in revenue.

“Our demand fell 90 per cent. We were really riding the limits of our existing credit, our overdraft was £15,000 and we were in it hard because of the outgoings and loss of revenue,” said Jack.

The company applied for the BBLS on the first day it opened, receiving the maximum amount available and getting the funds within four days. 

“It was a unique opportunity for us. We could have remained static and cut operations, but instead we thought we needed to make online work. We didn’t focus on ecommerce at all when we came into this,” Jack said.

Ecommerce is providing much needed short-term revenue, but there’s long-term potential too. Jack hopes that they can continue building online sales when live concerts return, putting the business in a much stronger position.

Have an honest conversation

Jack argued that businesses looking at borrowing money need to think about whether what is being done is sustainable.
“As a business owner, you have to have an honest conversation with yourself about the viability of your business. I don’t like that word but you have to have a serious conversation with yourself,” he said.

Jack plans to use no more than a third of the loan for working capital over the next three months and thinks other businesses should consider a similar threshold.

“The rest of it should be about building an adaptable model, even if it’s ad hoc, that can offset some of the losses,” he added.

Notepad Studio managing director Naeem Alvi
Naeem Alvi wrestled with deciding what level of risk was acceptable

Borrowing to invest in technology and software

Branding agency Notepad’s work fell by 90 per cent in March as clients put projects on pause while the team there assessed the situation.
Managing director Naeem Alvi decided to use CBILS to borrow £52,000 to make sure they had enough working capital. 

In the three weeks it took to access the funding, a sales push led them to win new work and their position became less precarious.

“I was in a mind to leave it as a reserve. I know we’re heading into a recession. But one of our advisers felt quite strongly that we should reinvest it.

“There’s no point in having that money doing nothing for you. You can keep some of it there to protect yourself but also look at what you need to invest in,” Naeem said.

He plans to update the company’s laptops, give the team access to powerful new graphics tools and implement a new CRM.

The funding will also pay for Notepad’s first proper outbound marketing campaign, which includes creating downloadable assets and direct mail.

At the same time, the company has been able to fund two new hires through working capital.

“When you’re approaching a recession, there’s a load of data to suggest that if you hunker down and hold onto your cash and stay slow and steady you’ll likely fail. If you invest and go for growth you’ll prosper,” Naeem said.

Converting a CBIL into a Bounce Back Loan

Notepad borrowed £52,000 through CBILS, an amount that’s close to the £50,000 Bounce Back Loan threshold.
After discussions with their bank, Naeem converted the CBIL to a Bounce Back Loan. This meant the business gained significantly better payment terms. Although Naeem plans to pay it back over two years, the company also now have the option to extend it to ten years through Pay As You Grow.

Thinking about the impact of repayment

Each of the businesses we talked to has thought about the impact of repayments. However, the favourable terms of the loans means each expect to be able to absorb the cost even if growth plans don’t come to fruition.
Paul from The Great British Biscotti Co said he’s not worried about the repayment of the company’s Bounce Back Loan. Either they’ll put money from their next funding round aside or will consider the payments as an extra overhead.

Jack from Terrible Merch is taking a similar approach. Their monthly repayments will be £880 and he believes the ecommerce opportunity the funding unlocks will cover that. If not, the live business should be returning to pre-coronavirus levels by the time payments start.

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