How to Complete a COVID Impact Statement
Updated: Mar 17
One of the many unwelcome side effects of the virus has been the requirement for businesses to provide a COVID impact statement when applying for bank facilities. The level of detail expected ranges from a four-page detailed fact-find to “give me a paragraph I can put in my report”. A request of either kind can lead to a lot of head scratching.
Of course, the correct answer for government-backed business interruption and bounce-back loans was, Very badly impacted, thanks for asking. With those schemes winding down, the focus turns back to traditional loans, where the bank rather than the taxpayer assumes the risk and businesses must instead project strength and resilience.
A bank’s credit appetite reduces in any downturn and so does its actual ability to lend, even if it wanted to. It has to set aside more capital for provisions against bad loans and switch staff from lending to fire fighting. Added to the mix in this crisis has been the need to handle a deluge of government lending applications and then unpick the fraud that came with them.
Some sensitivity to banks’ unease and straitened circumstances is therefore needed when approaching COVID impact statements. The lender must be able to see that your business can – or has already – overcome the pandemic.
Banks have all formalised their individual credit appetite for each industry and sector, so try to find out beforehand how the bank you are approaching views yours. That will inform the amount of effort and persuasiveness required.
Let’s look at the main areas you’ll be expected to cover.
1. Was your business impacted by COVID and if so, how?
It’s fine to say you were impacted. Banks were too, so they understand. A total shut-down, however, will look scary. Perhaps there was a skeleton operation throughout. Perhaps a reduction in services or output was your strategic decision with staff or client welfare in mind rather than being forced upon you.
There are different ways to quantify any losses. A drop in revenue and profit might look less bleak when presented as the whole year on year. Or you might prefer to compartmentalise a particularly grim quarter and effectively write it off, while highlighting that the remaining quarters / half year compared well.
If your business is changing shape anyway, you could separate out falling revenue lines as discontinued operations, while pointing out the strength in continued operations.
2. What actions did you take to keep your business viable?
Operational activity will feature here, but the lender will also want to see that you had a weather eye on costs and cashflow. Early, decisive action on staffing and premises will be expected and it will look better if directors also took some of the hit personally.
External grants and deferment schemes are only temporary expedients. How did you restructure the business to withstand adversity into the medium term? Demonstrate your awareness of the wider impact on your sector and how you have adapted.
Reassure the lender with a management plan that identifies the key risks to your business and the steps you are taking to address them.
3. What impact will COVID have on your business in the coming 12 months?
Minimum fluff and flannel: figures will be key here. Ensure you have made profit and loss and cashflow forecasts, however basic, and then make reference to them.
The assumptions behind these forecasts need to withstand scrutiny, so anchor them in facts: pre-COVID performance; present run rate or conversion rates from a new marketing campaign. Consider asking your accountant for a letter confirming the robustness of the business.
4. What is the impact on your clients / customers?
If you haven’t already assessed this thoroughly then it’s a highly worthwhile exercise anyway. A lender would expect you to know your top five clients, how that list compares to pre-COVID and how those clients are faring through the pandemic. If you have loosened payment terms to them, is it with the benefit of credit insurance, sight of their accounts, recent creditworthiness checks?
Always bear in mind that you might have a friendly relationship with your bank manager, but when it comes to applying for credit, your case will be reviewed by people less familiar with your business. Therefore don’t take it for granted that your industry or specific business is understood by the reader. Spell things out plainly, lead with figures and only use words in short sharp sentences to back these up.