Covid-19 is causing significant disruption to supply chains, distribution channels and the workforce. All of which puts significant pressures on businesses’ cash flow.
Last week saw the Government take unprecedented steps towards supporting the UK economy. News such as the Coronavirus Job Retention Scheme (CJRS) will have been a welcome relief to many.
However, while all support is welcome, there will inevitably be a time lag to receiving such support and that intervening period will need to be funded by your business, at least until the Government system is up and running. At the moment, we understand that companies will not receive CJRS reimbursement until well into May. Will your cash flow support this?
If your business is affected by Covid-19, you might need financial support as soon as possible and there is a range of options.
What support can the banks and the private sector offer?
Unlike the 2008 financial crisis, Covid-19 represents a massive demand-side shock to our economy, and so lenders are still lending.
A number of mainstream banks have dedicated support pages and we have provided links to some of these below:
- HSBC – hsbc.co.uk/help/coronavirus/
- Barclays – home.barclays/news/2020/03/supporting-our-customers-and-clients-impacted-by-coronavirus–co/
- Lloyds – lloydsbank.com/business/coronavirus.html
- NatWest – business.natwest.com/business/support-centre/service-status/coronavirus.html
- Santander – santandercb.co.uk/coronavirus
Speak to your bank at the earliest opportunity if you are concerned about the effects of Covid-19 on your business. You should be discussing options such as capital repayment holidays or reductions, short term facilities or increased credit limits.
Consider short term facilities – a number of lenders (not just the mainstream funders listed above) offer short term, working capital facilities which could support your business. We work with a great number of such liquidity providers and can work with your business to access such funders. Options can include invoice finance facilities, business credit cards, merchant cash advances etc.
Also consider alternative debt providers, who offer different sources of capital. We have strong links to many of these institutions and can assist you with introductions and any subsequent capital raises.
How is the Government supporting SMEs and large businesses?
- Small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief – your local authority will write to you if you are eligible for this scheme.
- Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000 – your local authority will contact you if you are eligible.
- The Coronavirus Business Interruption Loan Scheme (CBILS) offering loans of up to £5m for SMEs through the British Business Bank. See below for more details.
- Government support for larger businesses is available through the Covid Corporate Financing Facility (CCFF) which will provide funding to businesses by purchasing commercial paper (unsecured debt security that has a maturity of less than one year) of up to one-year maturity, issued by firms making a material contribution to the UK economy. See below for more details.
Other liquidity support being offered:
- Coronavirus Job Retention Scheme (CJRS) – HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers and it is expected that reimbursement to employers may take until well into May. This could have a major impact on your cash flow and therefore needs to form part of your cash flow forecasting and any loan request to your bank. Contact Kristine Scott, Partner in Employment, if you need further information.
- Deferring VAT and Income Tax payments – HMRC will automatically defer VAT payments for three months for all UK businesses.
- Statutory Sick Pay relief package for SMEs – a rebate scheme is being developed. Further details will be provided but, as a result, it will require funding in the interim.
- 12-month business rates holiday for all retail, hospitality and leisure businesses in England – this is administered at council tax level. No applications are necessary.
- HMRC Time To Pay Scheme – our tax team can advise on any such process as needed.
Is my business eligible for CBILS or CCFF?
Coronavirus Business Interruption Loan Scheme (CBILS)
CBILS is essentially a variation of the existing Enterprise Finance Guarantee (EFG) scheme whereby a Government accredited lender (most clearing banks, many challenger banks and other funds) provides a loan or other form of credit facility to an SME backed by a Government guarantee against the outstanding facility balance. The scheme and guarantee are administered by the British Business Bank (BBB).
The guarantee is provided to the lender and not the SME, but the SME remains 100% responsible for repaying the loan. In addition, the SME is also responsible for paying a quarterly guarantee premium in order to preserve the guarantee. Unlike a normal bank loan, the Government will also cover the first 12 months of interest payments, so the SME will benefit from lower initial repayments.
- CBILS will offer a wide range of business finance products, including term facilities, overdrafts, invoice finance facilities, asset finance facilities.
- 40+ financial institutions can provide this support.
- 80% of the loan is guaranteed by the Government so this means lenders are more willing to lend.
- Loans available up to £5m (increased from £1.2m on March 17) subject to affordability.
Who is eligible?
- Be UK based, with turnover of no more than £45m per annum.
- Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support or subject to limitations – see below).
- Be able to confirm that they have not received de minimis state aid beyond €200,000 equivalent over the current and previous two fiscal years.
- Be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility, but would be considered viable in the longer-term.
Full eligibility criteria will be published when the scheme goes live w/c 23 March 2020.
It is likely the process of applying for these loans and receiving the proceeds will be similar to a standard loan application. The British Business Bank have advised funds could start to come through this week for some applications. We won’t know average timescales for applications for some time. Our team are able to guide you through the application process.
Government support – Larger Businesses
Covid Corporate Financing Facility
The CCFF (the Fund) will purchase newly issued Commercial Paper (CP) in the primary market during a defined period. The Bank of England’s intention is for this to operate for an initial period of 12 months, to help businesses bridge through Covid 19-related disruption to their cash flow.
The Fund will purchase CP issued by companies (including their finance subsidiaries) that make a material contribution to economic activity in the UK (UK incorporated companies, including those with foreign-incorporated parents and with a genuine business in the UK, will normally be regarded as meeting this requirement). The CP will need to have the following characteristics:
- A maturity of one week to 12 months if issued to the Bank at issue via a dealer. Drawings can be rolled while the CCFF is open, subject to eligibility.
- Where available, a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at March 1 2020. This reference point is deliberately set prior to the possible impact of Covid-19 on firms’ short-term credit ratings. Issuers with split ratings where one or more rating is below the minimum are not eligible. The Bank and HMT will consider the eligibly of issuers at the lowest rating that were on negative watch or negative outlook as at March 1.
- Where a short-term credit rating is not available, the Bank will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the Bank can assess that the issuer is of equivalent financial strength.
- Issued directly into Euroclear and/or Clearstream.
- The Bank will assess whether an applying business was in sound financial health prior to the shock and will investigate a firm’s credit rating. The company does not have to have had issued paper before.
Financial service companies do not appear to be eligible.
More details are available here:
We are expecting more detail on both these government schemes today and throughout the course of the week. We will continue to monitor the situation and update our clients and contacts.
You should also note that both CBILS and CCFF are still borrowings and so the borrower will be responsible for repayment. As such, cashflow/debt servicing forecasts should still be prepared and bear in mind the impact, not just of the next few months while we are all living with Covid-19, but the debt position of your company as things start to return to normal.
How do I access this support?
We can help you by:
- Making applications to these government support schemes on your behalf.
- Discussing key steps you should be considering in the immediate, medium and long term around Covid-19.
- Advising on how to approach your bank or other funding partner to seek help.
- Facilitating introductions to new funding partners.
All businesses applying should note that, until a loan is approved and funding is forthcoming, you will need to rely on your cash reserves. Do your cashflow forecasts reflect these timescales and do you have the cash reserves to be able to support your forecasts?
Aside from the specifics of the application process, typical information that will be required is set out below. We would recommend you have this to hand (if possible):
- Latest management accounts (not including any element of coronavirus-related trading) to demonstrate the position of the business before the crisis.
- Your financial model (minimum of three months going forward) to include the impact of coronavirus.
- Balance sheet.
- Cashflow (minimum of three months) to reflect the impact of coronavirus. If possible, include a cash flow forecast without the impact of coronavirus and a narrative to accompany the two cashflows to explain the differences and any areas/times of particular concern.
- Narrative to set out; other areas of financial support (shareholders, landlords, customers, existing funders, new funders, government support, insurance claims etc); any new customers/opportunities; how badly hit the business will be as a result of the coronavirus; whether you will be in a position to “catch up” revenues post the crisis; what steps management is taking as regards customers, employees and debtors.