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Boost briefing: Access to finance during the COVID-19 crisis

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With businesses having to continue to manage cashflow and finances whilst facing closure through this difficult time of uncertainty, Mark Gibbons from Access to Finance North West outlines a number of financial considerations to support Lancashire businesses.

The world has changed

The world has changed indeed! And so has the world of finance since the outbreak of coronavirus COVID-19. We are experiencing a worldwide pandemic and unprecedented times. The effect of COVID-19 has resulted in governments enforcing lockdown to help save lives; economic downturn due to self-isolation; businesses failing; job losses and general widespread uncertainty. As a result, the UK government has moved into action – imposing almost wartime-like measures and applying new fiscal policies and social distancing guidance. It's with best intentions but its efforts alone are limited.

Businesses need to change too

There is a two-pronged approach to responding to the challenges and the financial management of your business.

  • Survive: How will you adapt your business in order to survive this change and manage cashflow?
  • Thrive: How will you respond to COVID-19, in order to finance the future growth of your business?

When the Coronavirus Business Interruption Loan Scheme (CBILS) was announced this £350bn ‘fund’ was intended to provide financial support to smaller businesses (SMEs) across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak. Sadly there is no silver bullet that will take away the pressure of business owners who are experiencing mass losses across the businesses.  Drops in revenue, with orders being cancelled; being short staffed due to sickness and staff self-isolating along with creditor pressure from suppliers is threatening the  sudden closure for many businesses that have worked so hard to build an established business. In reality it will be working with a combination of government mechanisms that will enable businesses to survive, diversify and get to the other side (whenever that is) albeit battered and bruised but . . . still running. Let's consider a few:

Accessing funding

The Coronavirus Business Interruption Loan Scheme (CBILS) delivered by the British Business Bank via accredited lenders is now available and will run for six months to provide businesses with access to lending. Under this scheme the government will provide lenders with an 80 per cent guarantee on each loan (subject to a per-lender cap on claims) intended to give lenders further confidence in continuing to provide finance to SMEs.

The maximum loan value will be £5m (up from the £1.2m maximum previously announced in the recent budget) and the new guarantee will initially support total loans of up to £1bn. These loans are interest free for the first six months and there should be no charges charged by lenders for putting these in place. To be eligible for the scheme you need to have a borrowing proposal which, were it not for the Covid-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty The borrower always remains 100 per cent liable for the debt. 

Bounce Back Loan Scheme (BBLS) delivered by the British Business Bank via accredited lenders primarily the high street banks are now available and provide easier access to lending. Under this scheme the government will provide lenders with an 100% guarantee on each loan intended to give lenders further confidence in continuing to provide finance to SMEs. The maximum loan value will be £50k. These loans are interest free and no capital repayments for the first 12 months and there should be no charges charged by lenders for putting these in place. Loan details include:

  • Minimum loan £2k and maximum loan £50k (Capped at 25 per cent of turnover)
  • Maximum six-year loan term
  • Business must have been established prior to March 1, 2020
  • Includes online two to three-page application
  • Required self-certification of business viability at December 31, 2019 prior to COVID-19
  • The business cannot have accessed other government loans with exception that a CBIL conversion is allowed
  • Self-certification of business turnover required.

Future Fund issues convertible loans to innovative UK companies with good potential, that typically rely on equity investment and are currently affected by COVID-19. The scheme, will help these companies through the current period of economic disruption and the recovery, so they are able to continue their growth trajectory and reach their full economic potential.

The scheme is designed by government and delivered by the British Business Bank The Government has made £250 million available for the Future Fund, and will keep this amount under review. The scheme is initially open for applications from 20 May until the end of September 2020.

Preserving Cash

HMRC has extended its Time-to-Pay service where it may be willing to grant additional time to pay tax liabilities that are otherwise due. There is an HMRC dedicated hotline for this: 0800 0159 559 Further information can be found on the government’s coronavirus tax helpline website page.

Approach your existing lenders to determine if a repayment holiday can be agreed, approach trade creditors to defer payments or increase credit terms and landlords to see if payment holidays can be agreed. Check your business and commercial contracts and insurance policies to see if they cover these matters too.

Managing employees

Furlough leave is a new legal concept. Under the newly created Coronavirus Job Retention Scheme, an employer will be able to agree that a worker who would otherwise have been made redundant during this crisis can be designated as a ‘furloughed worker’. They will then remain in employment and on the payroll but not undertake any work, and HMRC will reimburse the employer 80 per cent of the furloughed workers wage costs, up to a cap of £2,500 per month.

HMRC are urgently setting up the system for reimbursement. Employers may then choose to fund the additional 20%, but they are not required to do so. The intention is that the Coronavirus Job Retention Scheme will run for at least 3 months from 1 March 2020, but the government will extend if necessary. Updates and further advice regarding the CJRS and other government financial support programmes are regularly added to the #AskForHelp hub.

There is no doubt that there is a wealth of support and provision to support business however that does not mean that it will be an easy path back to the ‘old normal’.

Mark Gibbons is a senior business advisor at Access to Finance Northwest (A2F). He specialises in supporting businesses in Lancashire to gain access to finance.

The A2F service provides SMEs in Lancashire with bespoke funding support, signposting the products and providers which will unlock their business growth. GC Business Growth Hub / A2F are hosting 'Strive and Thrive' webinars to help Lancashire businesses. See the Boost events page for more details.    

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