During the various lockdowns, the different forms of CJRS and CBILS/Bounce back loans provided vitally important financial aid from the Government, which eased cashflow for business’ forced to close or those who may have ceased trading otherwise. In many respects these loans have been perceived as ‘free’ money and the CJRS has been a vital prop and certainly avoided a catastrophe in the employment market whilst the interest free periods and repayment holidays being offered on many of the CBIL loans means that business’ have been looking at healthy bank balances and have spent or are making plans to spend the additional cash.

During the various lockdowns, the different forms of CJRS and CBILS/Bounce back loans provided vitally important financial aid from the Government, which eased cashflow for business’ forced to close or those who may have ceased trading otherwise. In many respects these loans have been perceived as ‘free’ money and the CJRS has been a vital prop and certainly avoided a catastrophe in the employment market whilst the interest free periods and repayment holidays being offered on many of the CBIL loans means that business’ have been looking at healthy bank balances and have spent or are making plans to spend the additional cash.

The potential problem in doing this and the effect on cashflow is the ability to service the loan, with much of the normal lending criteria being overlooked due to the need for the cash to oil the working capital cycles of business under extreme stress, the ability of business’ to do this from generating additional profits to cover loan repayments is an important question to be asked and answered if defaults and cashflow problems are to be avoided.

When the CJRS scheme finishes at the end of this month there is undoubtedly going to be a surge in redundancies and the cost of this needs to be considered if the cash from the CBILS loan has already been used. A further impact on cash in the business could also be felt if the CBIL loan has been used for capital investment then this will hopefully produce additional profits, but where the real problem sits is where business’ have had to use the CBIL loans to bridge losses incurred during Covid and when markets open up and full trade resumes and full or increased profitability is not realised, then the capital and interest repayments will start to be a problem.

In the weeks and months ahead, these problems will take time to develop and evolve and the risk of future variants and lockdowns may improve or exacerbate the situation, some firms will flourish and not look back whilst others will struggle to recover, especially if previously cashflow had been tight.

However, all businesses with a CBILS Loan should quantify the impact of this risk when reviewing their business plans in the post Covid world and making contingencies as required. I have been working with a number of our clients on reviewing their plans, if you would like a no-obligation chat around this subject you can book , you can book your appointment at a time that suits you by clicking here.