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Making ends meet: Short-term funding support

To help, Jeremy Huband of HSBC UK writes about the Government coronavirus-related loan schemes and more widely about what finance options are available, giving a feel of what your options are when you approach your bank and what they might ask.

There are any number of reasons that providers might be facing problems with cashflow at the moment.

As an introduction, I am Head of Healthcare for HSBC UK; my role is to support commercial customers in the healthcare industry across the UK. This involves working with customers, frontline staff and various offices within the bank. We work alongside businesses in both the social care and primary care space, including care homes, homecare providers, community pharmacies, dentists and GPs.

Every day, we are either talking to customers in the sector or to people within the industry. What we hear is that many of our customers have been impacted by COVID-19 and we are working hard to ensure that all of our customers have the guidance and support they need at this time.

This may include considering amendments to existing facilities, additional finance, or to assist with access to various Government COVID-19 finance schemes, such as the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme and the Bounce Back Loan Scheme, which I will describe later.

The situation so far

During April and early May we saw operators furlough staff who were sick or needed to be isolated due to underlying health issues. This has placed pressure on staffing for some care providers, in some cases requiring agency staff to cover shifts.

Agency staff are more expensive, which can impact on profitability, and where agency staff work in different homes there comes a greater risk of spreading the virus.

We saw occupancy in care homes for older people dip in late April, as most hospitals by this point had transferred out those who they could. In addition, many potential private-pay residents, having seen the negative news coverage, continued to self-isolate at home as they either didn’t want to go into a home or felt unable to due to the national lockdown.

Providers have also had to protect staff and clients with Personal Protective Equipment (PPE) which comes at a price and needs to be paid for out of existing budgets.

Finding help

Where providers have suffered short-term cash flow issues – whether caused by falling occupancy/contracts, agency costs, increased staffing hours, PPE or any of the other cost increases we have seen – they may need some financial assistance. This assistance may be a short-term overdraft as occupancy levels recover and/or fee rates are adjusted to cover the new cost of care.

Another option, if you are borrowing money and this is repayable via regular capital and interest repayments, is to ask the bank for a capital holiday. In this way, you continue to pay the interest, but your repayments are lower for the agreed period, helping your cash flow. They are then adjusted as agreed to repay the debt.

Government schemes

The Government schemes start with the Business Bounce Back Loans (BBLS). Here, the Government provides accredited lenders with a 100% guarantee. Please note, the borrower remains 100% liable for the debt. Any business can apply for loans worth up to 25% of business turnover, with a maximum limit of £50,000.

The aim is to help businesses access cash so they can keep operating. Banks should have a straightforward online application, typically via a website. This is a simple product, a term loan with a six-year term, without early repayment fees. No repayment of capital is required during the period of 12 months from drawdown, and the Government pays the fees and interest for the first 12 months. The interest rate is fixed at 2.5%.

The second scheme is the Coronavirus Business Interruption Loan scheme (CBILS), a Government guarantee which secures bank loans to any viable business with a sound borrowing proposal. No fee is required for Government guarantee and there’s no loan arrangement fee or loan repayment fee, should you wish to repay early.

These are available for sums of £50,001 to £5m. There is a variable interest rate with the option to fix. An interest-free period of 12 months will apply, after which you will be charged:

  • 3.49% over Bank of England Base Rate for loans up to and including three years.
  • 3.99% over Bank of England Base Rate for loans over three years.

There is no repayment of capital required during the period of 12 months from drawdown and the loan can be repaid over any period up to six years.

The third scheme is the Coronavirus Large Business Interruption Loan Scheme (CLBILS) which is designed to support customers who would be considered viable were it not for the COVID-19 pandemic and who have a borrowing need. Here, the Government guarantees secure bank loans to any viable business with a sound borrowing proposal.

CLBILS has commercial rates of interests, security requirements on a case-by-case basis and a term between three months and three years. For businesses with an annual turnover of between £45m and £250m, sums up to £25m are available, and, where turnover is in excess of £250m, up to £50m could be available.

We will recover

We have seen all our care home customers continue to trade strongly with minimal access to the coronavirus Government-backed schemes. This is probably because, across the country, healthcare provision broadly reflects demand, with care homes typically 90% full year-on-year.

Looking forward, we can see some care homes for older people facing a short-term fall in occupancy, having lost residents to COVID-19, but we believe well-managed providers will recover and continue to successfully serve our communities in the years to come.

Jeremy Huband is Head of Healthcare – UK Corporate Banking at HSBC UK. Email: Twitter: @HSBCUKBusiness

Have you used any of the Government-backed coronavirus loan schemes? Are you facing cashflow issues? Share your experiences and leave feedback on this article in the comments section below.

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