The Irish Hotels Federation recently hosted a webinar to promote the SBCI loan guarantee scheme products that are now open for application which have capacity to provide term loans for businesses impacted by COVID-19.
On the webinar, Crowe partner and hospitality specialist, Aiden Murphy, provided strategic advice to hoteliers on how to formulate their bank application and cash flows in this COVID-era, considering all of the challenges that exist for hotels over the next 18 months.
Aiden emphasized the need to build resilience into the hotel balance sheet by obtaining approval and drawing down on SBCI-supported term loans while the funds are available. The window for approval is up to 31 December 2020 with funds allocated on a first-come first-served basis.
The SBCI term loans are to be used to pay, COVID-era debts, CAPEX to modify the premises to trade better during COVID restrictions and restructuring costs such as redundancy. Aiden suggested hoteliers “look forward” to identify any negative cash flow for Q4 2020 and Q1 2021. If there are funding requirements identified, these could be rolled into the term loan to give the hotel every chance to remain solvent and trading throughout 2021.
Aiden discussed matters such as EWSS, tax warehousing, local authority rates after the waiver period and the sensitivity analysis that the bank is likely to require for different downside eventualities. This might include the cash flow impact of a new lockdown periods causing additional closure and the impact of turnover being 10% below targets. All these matters need to be addressed in the bank application so that the bank understand the approach taken by the borrower in preparing the cash flows.
The guiding principal to taking on more debt is an expectation that it can be repaid and that the business will return to profitability so it can service the loan. Aiden suggests that hotels need to adopt a “best foot forward” approach rather than being too pessimistic about 2021 trading levels.
Gerardo Larios Rizo, a representative of Bank of Ireland, outlined the principal pf “vulnerable but viable” being the motivator for the government in setting up the scheme. He outlined the expected term for BOI loans as 3-4 years, but that they could stretch to 5 ½ years, and that the interest cost would be in and around 3%. A term loan of up to €1m can be approved subject to caps where borrower can demonstrate reduced turnover/profits by at least 15% due to COVID-19 against 2019 figures.
Mary Mackin from AIB, provided an overview of the Future Growth Loan Scheme – another product offered by SBCI – which offers term loans for periods of 7-10 years. These loans are to promote business growth and can be used for investment, expansion or acquisitions. The scheme can be used to support changing the direction of the business or broadening the business activities to make greater use of the management overhead.
A series of polls were taken during the webinar, which identified a 94% take-up by attendees of the Restart Grant. 52% of respondents expected to avail of the COVID-19 SBCI loan guarantee scheme, which could mean hundreds of applications from hoteliers will need to be processed by the participating banks over the next three months. Therefore, the earlier the application is made, the greater the chance of success for individual borrowers in obtaining these funds. 50% of those polled already had their 12-month cash flow prepared and a further 38% said they were in the process of preparing their cash flow.
In these very uncertain and challenging times, it is important that hotels put term facilities in place as a defensive move and use the window before 31 December 2020 to get an allocation of the SBCI funding for their businesses.
Should hotels need assistance in preparing the bank application and cash flows to provide the best opportunity to secure their required facility, please contact Aiden Murphy or a member of our hotel, tourism and leisure team.