I read an article in the Sunday Times about the launch of bounce back loans and concern about how struggling firms are ever going to repay them.
I did consider that a drowning man will not spurn a place in a lifeboat. There would be no guarantee that he will reach the safety of the shore, but he will still take the chance as it is better than the alternative.
Anyway, midway through the article, I came across Andrew Bailey, the Governor of the Bank of England, espousing his view that there are companies that should be raising equity rather than taking on more debt ‘because, if you were over leveraged, the answer is not to take on more debt but to go into the equity market’.
Apparently the Bank of England had estimated that businesses were facing a £140 billion cash flow deficit but there was a shortfall of £80 billion with bank lending over the next two years consequently being £60 billion.
The article was, however, ostensibly about the bounce back loan. The maximum lend is 25% of turnover up to a cap of £50,000.
Companies going for the bounce back loan are from our client constituency. Would any company seeking a bounce back loan be able to secure external equity from the markets as an alternative? I doubt it. The best bet would be family money, if there were any.
I suspect that Andrew provided a quote to the general question of business debt, covering the CBILS as well as the BBLS, the former being more relevant for the national and international players but the journalists insinuated this into the feature to give it authority and gravitas.
Elsewhere in the paper I came across examples of CEO’s up against it and hiring consultants to advise on their options. There is the definition of a consultant that he tells you what you already know. One may or may not subscribe to that cynical assessment of their utility.
It is usually the safe call for the CEO to keep activist shareholders at bay and shore up their position – call in a consultant to report on the options available to provide authority for the actions taken.
In our constituency, business owners normally have a shrewd idea of what they need to do to protect their business. I would like to think that they also look to us to provide some guidance and advice based on our overall business experience. Indeed I would also like to think that businesses engage us because we are proactive rather than simple number crunchers. Our Managing Partner, Nick Forsyth, is good at diagnostic advice. We do not sit on the fence.
Now more than ever we are trying to support our clients in these tough times. I use the expression ‘sitting on the same side of the table’.
Posted by Paul Short
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.