Now that we’re a couple of months into the crisis that is COVID-19, even companies that previously had healthy cash reserves are starting to get anxious. Although it’s beginning to look like there may be an end in sight, the economy is still stagnating and small businesses are continuing to seek new sources of liquidity.
The UK government have taken unprecedented steps in trying to prop up the economy, and in doing so, support small businesses. So far, more than £15bn has been claimed by businesses using the Coronavirus Job Retention Scheme and with the program due to continue until at least October, this figure will only increase.
The government are further helping businesses by allowing any and all VAT payments due between 20th March and 30th June 2020 can be deferred until 31st March 2021, as well as implementing a number of smaller measures around sick leave and business rates relief.
However, they are well aware that this isn’t going to be enough. COVID-19 has had an unprecedented impact on a huge number of businesses with many seeing their entire revenue stream dry up almost overnight.
As a result, the government have taken action by offering liquidity in a number of different forms. Whilst immensely welcome, the different options available to small businesses can be unclear and confusing. Hopefully the information in this article will provide some clarity as we outline the different grants and loans available:
We’ll start with grants as receiving non-repayable funding is almost always preferable to a loan. There are two key grants available to small businesses;
Small Business Grant Fund
The Small Business Grant provides a £10,000 capital injection from the government that is non-repayable and free of restrictions. To be eligible, the business must be based in England (although parallel schemes are running in the rest of the UK), occupy a property and be eligible for small business rate relief.
But what is small business rate relief? Small business rate relief is an exemption from having to pay small business rates. Rates are similar to council tax but for businesses (although that comparison is very much simplified). Each commercial property is given a rateable value which is used to calculate the rates you pay. If the value of your property is below £15,000, you are eligible for the relief (or a tapered version of it), and as a result, are eligible for the grant.
Your local council should have contacted you via post with an application form for the grant. Considering most people aren’t currently accessing their office with any regularity, many of these are getting missed. If you haven’t received a form but think you should, the best option is to contact your local council who will be managing the grant process.
Retail, Hospitality and Leisure Grant Fund
The Retail, Hospitality and Leisure Grant provides small businesses with a grant of either £10,000 or £25,000 and operates in a similar way to the Small Business Grant Fund, but with a focus on businesses in the most-affected sectors. Once again, this is non-repayable and free of restrictions.
Eligibility requires the business to be based in England (although parallel schemes are running in the rest of the UK), be in the retail, hospitality or leisure sector, and have a rateable value under £51,000.
Businesses whose property has a rateable value below £15,000 will be eligible for a £10,000 grant (and would also be eligible for the £10k Small Business Grant) whilst those with a rateable value between £15,001 and £51,000 are eligible for a £25k grant (but wouldn’t be eligible for the Small Business Grant).
The application process is the same as the Small Business Grant in that you should receive a form through the post, but if not are advised to contact your local council.
Coronavirus Business Interruption Loan Scheme
The Coronavirus Business Interruption Loan Scheme is being offered by most high street banks and some other lenders, and provides businesses with a loan of up to £5 million. Businesses must be based in the UK, have turnover below £45 million and show they were not in financial difficulty before the crisis to apply.
There are no defined terms or rates under this scheme so it’s worth speaking to your bank to see what they can offer.
As part of the application, banks will typically ask for some financial information, namely the prior year statutory accounts and current year management accounts. If you’re in the middle of an application and need some help pulling this together, feel free to get in touch.
The fact that businesses need to prove they weren’t in financial difficulty before the crisis means not everyone is able to access the scheme. This is exacerbated by the fact the government are only backing 80% of lending meaning the banks are still putting up some of their own money and thus applying their normal stringent lending criteria. A number of companies, particularly those not yet profitable, are being rejected.
Which leads us on to…
Coronavirus Bounce Back Loan
The Bounce Back Loan Scheme allows small businesses to borrow between £2,000 and £50,000 (restricted to 25% of their turnover). The scheme is 100% government backed which makes this scheme accessible to a wider range of businesses.
The terms of the scheme are very favourably as all interest payments will be paid by the government for the first year, after which interest will be charged at 2.5% for a maximum of five further years.
Once again, this is provided by all high street banks and a number of other lenders. Different lenders may have different application processes but they’re likely to ask for similar financial information as listed above. They’ll want to see that the eligibility criteria are met in that the business:
- Is based in the UK
- Was established before 1 March 2020
- Has been adversely impacted by the coronavirus
We would suggest first speaking to whoever you currently bank with. They’ll have the best understanding of your business and in theory will therefore provide the smoothest application process.
Coronavirus Future Fund
Although applicable to a narrower range of businesses, the Coronavirus Future Fund provides funding in the form of loans between £125,000 and £5 million. The eligibility requirements are more stringent in that any loan amount will have to be matched by a private investor. In addition to this, only businesses that have previously received £250,000 of equity investment in the last five years are eligible. As you can imagine, this is largely being aimed at start-ups that are unlikely to have made a historic profit and are therefore unlikely to be eligible for the other loan schemes.
The terms are far less favourable than the Bounce Back scheme as any amounts not repaid by the business ahead of its next funding round are automatically converted into equity, at a discount of 20%. In addition to this, interest is charged on the loan before conversion at a minimum of 8%.
Although there may be exceptions, businesses would be advised to only apply for such a loan in instances where the other options outlined above are unavailable.
All of the traditional funding and liquidity options are still open to businesses i.e. non-government backed loans/external investment/etc…. However, considering grants pose no drawbacks and the loans have some of the most favourable terms we’ll ever see, if you’re cash balance is looking low, these should be your first port of call.
Hopefully this provides some clarity in the most uncertain of times. If we can be of any further assistance, please do not hesitate to contact us at firstname.lastname@example.org.
The Team at Leap Accounts & Outsourcing