Using the Coronavirus Business Interruption Loan Scheme to secure your firm’s future

Mike Stevenson, managing director at Iceberg, says SME law firms much now learn how to balance any short-term financing needs with making provisions for the long-term security of the business.

Since its launch at the start of the Covid-19 pandemic, numerous businesses across the legal sector have benefited from the government’s Coronavirus Business Interruption Loan Scheme (CBILS). The scheme was extended to accept applications until late November, a potential lifeline to help legal practices secure their future in the midst of the second wave.

As a result of the scheme, many firms are now sitting with a little extra cash in the bank. The next step they must manage is how to balance any short-term financing needs with making provisions for the long-term security of the business.

In the early days of the pandemic, many anticipated a return to normality by Christmas but it’s now apparent the disruptions may last well into the first half of next year, and possibly even beyond that.

With the scheme now closed for applications, law firms might want to consider using their CBILS funds for long-term recovery plans, while considering other financing solutions for the more short-term needs of the business.

Building a contingency versus managing short term expenses

One of the key features of CBILS is that there’s no interest due in the first 12 months as this is paid by the government, and the repayment term of the loan is typically staggered between four and six years.

The CBILS format is, therefore, well suited to be used as a long-term financing solution that will support businesses’ post-Covid-19 recovery. As the road to recovery is paved with uncertainty with no clear timeline, it’s important to make provisions with long-term financial security in mind.

In addition to this, law firms will want to avoid building a legacy of servicing long-term debt. Because CBILS loans are designed to be repaid over a long period, more short-term financing solutions might be better suited for expenses due in less than 12 months.

Legal businesses can use short-term loans to meet recurring quarterly, bi-annual and annual expenses such as VAT, tax and professional indemnity insurance premiums, while retaining CBILS cash as a contingency pending economic recovery.

Another important benefit of CBILS is that borrowing for short-term debt will be easier while businesses can demonstrate access to CBILS liquidity. Without this, the credit markets may not be as accessible to law firms.

If the economy proves sluggish to improve over the next year and beyond, businesses will find themselves with valuable cash reserves that they can draw upon if necessary, providing more long-term security.