Mike Stevenson, Managing Director at Iceberg, provides an overview of the Coronavirus Business Interruption Loan Scheme (CBILS) and common misconceptions, as well as outlining other support available for UK law firms during the coronavirus pandemic.
Many legal firms will be attempting to evaluate their financing requirements over the course of the next few months. However, with the prospect of a second lockdown hanging over the industry, making predictions about future financing needs during such uncertain times is no easy task.
At the same time, it certainly feels like there is a lot to plan for, between deferred VAT and income tax payments, professional indemnity insurance (PII) payments, and salaries post-furlough, it’s important that legal firms make provisions for the future now rather than later.
The UK government recently announced it is extending CBILS, which is now open for applications until 30th November 2020. This offers law firms the opportunity to apply for a loan of up to £5m to cover any cash flow issues over the course of the next few months.
This extension offers legal firms another string to their bow when it comes to planning, in the form of another financial solution that is completely flexible, with no repayments or interest due until the end of the first 12 months of the loan.
In terms of establishing eligibility, there are a number of factors to consider and Iceberg would encourage legal firms to get in touch with their lender to discuss requirements. However, we can shed some light around some common misconceptions around Coronavirus Business Interruption Loans.
To find out more about whether a CBIL could be the right solution for your firm, the guidance available on gov.uk is a good place to start.
Misconception one: You can only take out one CBIL
Many legal firms will assume that because they’ve taken out one loan under the scheme already, this mean they are not eligible for another one. This is incorrect. A legal firm can have more than one CBIL, although full eligibility checks will need to be completed for each separate loan.
Misconception two: CBILs are the only financing option available
There is a range of financing options available to legal firms and the CBILS is just one of those.
Firstly, if you are a smaller legal firm and you need to borrow £50,000 or less, a Bounce Back Loan will likely be a better option for you.
Secondly, the CBILS can be used to bridge a shortfall in your working capital, but businesses may be able to increase existing overdrafts or other facilities available through their bank without having to resort to a CBIL.
Depending on your requirements and the nature of your financing needs, there may be a range of financing solutions that can be tailored to the individual requirements of your business. These may include a CBIL, loan advances to cover tax payments or PII, or a blend of other options.
Misconception three: You will always need to repay a CBIL in full after 12 months.
The CBILS requires no repayment of capital for the first 12 months of the loan. It is then repayable over a period of up to five years. The chancellor has recently announced an extension of this time for up to 10 years and further details are awaited on this.
In addition to this, the UK government pays the interest on the loan for the first 12 months of its life. This means there are no repayments of interest or capital for the first year.
To find out more about whether a CBIL could be the right solution for your firm, the guidance available on gov.uk is a good place to start. This will then tell you more about eligibility and direct you to a list of approved lenders.