In light of the Coronavirus pandemic, governments across the world have provided private companies with various levels of support, and the UK government has been no different.  This support has been widely welcomed and is the difference between life and death for many companies.  However there are hidden issues, some peculiar to the training industry, which mean these support schemes come with a health warning.

The government has issued two loan schemes.  The Bounce Back loan scheme (BB), which provides loans of up to £50,000 for private companies, and the (Coronavirus Business Interruption Loan Scheme (CBILS) scheme, which provides more substantial loans.

These loans offer preferential rates, and on the face of it are hard to turn down.   Both schemes are free of set up charges, early repayment penalties, and year 1 interest.  Interest on the BB schemes is 2.5% across the board, and the CBILS loan schemes are approximately 5% above the Bank of England base rate.  So what’s the problem?

Problem 1

Taking on debt affects companies on the Register of Apprenticeship Training Providers (RoATP) Financial Health Assessment score (FHA).  It increases the companies gearing (debt as a proportion of the company’s assets), which could be the difference between passing the FHA and failing it.

The solution here is to model the effect of the loan before taking it out.  Great advice, but what if you’ve already got the loan and now your company is staring RoATP failure in the face?  

  1. You could change the company accounting reference date, i.e the year end date.  That will push the FHA assessment back, and give the company time to improve performance which in turn achieves an FHA pass.  Note there are restrictions on changing the accounting reference date, so proceed with caution.
  2. The company may still have the money and could repay it, although it may still have to change the accounting reference date. 
  3. Alternatively, other debt, e.g. directors loans, could be turned into equity.  That would also improve gearing.  However this would have personal tax implications for the directors who had made the loans, so advice should be taken before proceeding.
  4. And if the company hasn’t taken out debt yet, it would be worth delaying such a decision until after the year end if possible, in order for the latest financial accounts assessed by the ESFA, not to take the loan into account. 

Problem 2

Taking on debt to fund ongoing activities is a sign of a business in trouble.  The debt cash is simply deferring the day of reckoning, and doing what it’s always done in the past is unlikely to solve the company’s problems. 

It’s likely the business is dealing with surface problems – out of time learners, late completions, data entry issues – rather than dealing with the core problems – modes of delivery, staff performance and productivity, and data management.  It’s these problems – the important, but not urgent, which require attention over a longer period of time in order to deliver a turnaround.

Whatever your company’s financial performance issues, having timely and accurate financial reports each month is critical to managing these risks.  If your finance department isn’t delivering that, we can help support them to do so. 

Book  a discovery call, to begin the conversation.