Expert analysis from Nick Ashmore, Chief Executive, Strategic Banking Corporation of Ireland (SBCI). This article has been written exclusively for IoD Ireland members.
Having a good business plan is not enough on its own for SMEs trying to survive the COVID crisis. They also need a strong financial plan to make sure they have access to the funding they require.
The Role of the Strategic Banking Corporation of Ireland
The Strategic Banking Corporation of Ireland (SBCI) can help. We’ve already supported over 30,000 Irish SMEs with over €1.5 billion in low-cost, SME-friendly loans and leasing products, with our average loan size now at €42,000 on our liquidity business and €75,000 on our risk-sharing schemes.
We’ve helped businesses in almost every sector – food, agri-business, retail, manufacturing, tourism, services, technology and many others – by making finance available at rates well below current market rates (e.g. Future Growth Loan Scheme ranges from 3.5% to 4.5% max).
We’ve learned a lot from these SMEs since we first opened for business in 2015. And over the past five years we’ve teamed up with 11 different lenders – ranging from big Irish and international banks to small specialist finance providers, as well as new entrants to the Irish SME financing market.
And we’ve sourced low-cost funding support from a range of European SME financing schemes, bringing lower-cost funding and risk-sharing mechanisms that make it easier for SMEs to get loan approval with more flexible security arrangements.
The Impact of COVID on SMEs
The Covid crisis means more SMEs than ever need our support.
We’ve moved quickly to meet their needs, launching the dedicated COVID-19 Working Capital Scheme for SMEs within six weeks of the first COVID case emerging in Ireland. This gives us significant fire-power to help SMEs get through the tough months and years ahead.
This scheme will deploy, over time, up to €375 million in low-cost finance, with loans between €25,000 and €1.5 million available at a maximum rate of 4%.
In our first six weeks we approved over €30 million in loans for SMEs, getting off to a really strong start.
Based on what SMEs and our lending partners are telling us, we’ve identified seven key tips that business owners need to do to give themselves the best possible chance of getting through the COVID crisis, protecting their incomes and making their businesses as strong as possible.
1. Understand your Cash Flows and Make Them Your Number One Priority
Managing cashflows is important even in good times but, for most businesses, it is now critical to their viability. A cashflow crunch can put an end to the smartest of businesses in the current environment.
In many sectors, especially those dependent on consumer spending, revenues may have completely disappeared. That creates enormous problems for SMEs that must still meet contractual outgoings, such as existing bank loans, rents or supplier payments.
Businesses will benefit from a detailed, detached analysis of current cashflows and incoming and outgoing cash over the remainder of the year. Make a realistic assessment of when cashflows are likely to recover – even if it’s pessimistic.
That assessment can form the basis of informed discussions with creditors or a plan to align the term of any lending with the anticipated cashflow profile.
2. Use Your Advisors - Accountants, Lawyers, Financial Advisors
Your advisors have the benefit of seeing how other businesses in your situation are coping. They offer a chance to learn from others’ mistakes or tailor things that worked well in other SMEs to your own individual circumstances.
Accountants and financial advisors will support you in identifying potential financial supports from the State or other sources. They can help you produce the financial documentation necessary to support your application for these supports. Your business deserves the best possible chance to survive – use the knowledge of your advisors wisely to achieve this.
3. Check Out and Use State Supports
If you’ve been ignoring the huge range of State supports for SMEs, now is the time to change that. Your Local Enterprise Office is there to support your business in whatever way it can. Make contact and see what they can do for you.
Enterprise Ireland exists to bring IDA-style support to Ireland’s indigenous businesses – both large and small. Check out its website and tap into its nationwide network of sector-by-sector expertise.
If you have suppliers or customers in Northern Ireland, the cross-border trade development group Intertrade Ireland may be able to help you.
Your individual sector may have its own specialist State agency, such as Fáilte Ireland for the tourism sector and Bord Bia for food and agri businesses.
Your business could be missing out on grants it’s entitled to or specialist knowledge than can help it to survive. Don’t make accessing State support the difference between your business succeeding and failing.
As a starting point, the Department of Enterprise, Trade and Employment, is a good source of information on all the supports available.
If you have a a larger business, you may be able to access long term investment at scale from the Ireland Strategic Investment Fund (ISIF), the State’s sovereign development fund, through its Pandemic Stabilisation and Recovery Fund.
4. Use Credit Wisely – Especially Lower-cost Credit on Offer from the SBCI
Check out the SBCI website for a wide range of State-supported financing options. Look in detail at the various forms of short-term, medium-term and long-term financing options that are on offer – overdrafts, term loans, invoice financing and leasing.
In addition to the SBCI COVID-19 Working Capital Scheme, additional funding will be made available in the coming months through the SBCI’s other schemes, such as the Future Growth Loan Scheme and an expanded Credit Guarantee Scheme.
Talk to your financial advisor or your bank or call the SBCI directly on 01 238 4000.
5. Consider Raising Equity or New Forms of Debt
Many family-owned businesses have ignored unmissable opportunities to grow in good times by seeking to keep full ownership within the family. It’s a noble ambition but it might not necessarily be the best thing for the business in challenging conditions like today’s.
Over the past 10 years a wide range of new options have become available for sourcing equity investment, with many investment and venture capital funds, including some backed by ISIF, opening for business in recent years.
Equity investors tend to look for less certainty on cash flows than debt investors. If the business profile and the opportunity are right, they can offer what is known as “patient capital”, committing to invest for the long term without seeking an early-stage exit within three or five years.
Another option has emerged in Ireland in recent years in the form of new types of debt, such as mezzanine, hybrid or subordinated debt. These types of debt are tailored for businesses or projects that have a higher risk profile than traditional debt, with providers offering to lend in this way in return for returns that reflect the risk.
6. Digitise your Business and Move Online
If you’re not online already, this could be the time to make the great leap. It offers opportunities to find new customers both in Ireland and anywhere in the world. It can take out costs, improve margins and grow revenues.
In addition, COVID appears set to leave a lasting impact on the working world by triggering an unparalleled shift to working from home. This in turn has encouraged a society-wide upgrade of digital skills, creating new norms for interacting with customers, suppliers and colleagues. It’s an opportunity to win and retain new customers that may in the past have struggled with the concept of working with an online supplier. Make it your opportunity.
7. Be Ready for Any Second Wave
Hope for the best but plan for the worst. While we all share the hope that it may never happen, it is still crucial to be prepared for a reverse in the encouraging trends we have seen in recent weeks.
Now is the time to think about how resilient you can make your business if it needs to function solely as an online provider, or if you have to modify how you interact with your customers – e.g. if you can deliver to customers who cannot come to your physical location to buy from you.
The key to making the best of your options is familiarising yourself with them. The good news is it’s never been so easy to get access to the information you need to weigh up what’s best for your business.
If the SBCI looks like the right port of call for your business, make sure to come and talk to us. Our website has all our details and we’ll make it as easy as we can for you.