Hi

 

The news this week around measures to protect small businesses through the current Coronavirus pandemic has been, at times, confusing and I have received numerous queries from clients and contacts asking whether I can summarise the measures and, more importantly, explain to small businesses how they can access the support.

Here is a summary of what is currently available (with some comments from me you may not hear from the government).

Many of these measures build on support announced in last weeks’ Budget, the key changes being as follows:

1. The previously announced fund for the Coronavirus Business Interruption Loan has been increased from £1.2bn to £330bn, with ‘unlimited funding’ promised if more is needed, although this support is for lenders and not small businesses themselves.
2. The previously announced limit of £1.2m per business has been increased to £5m per business.
3. Business rates support and grant funding has been increased to £20bn.
4. All hospitality, retail and leisure businesses in England will qualify for a business rates holiday for 12 months. These businesses are also able to apply for £25,000 grants.
5. The £3,000 grant that had been announced for small businesses eligible for Small Business Rate relief has been increased to £10,000.
6. Mortgage lenders will allow mortgage holidays of up to 3 months.
7. Pubs and restaurants will be allowed to provide takeaway services without a planning application.

The details of most of these schemes are yet to be made available. However here is a summary of what we know today:

1. Coronavirus Business Interruption Loan Scheme

This has been brought forward, and we now expect the new scheme to become available in week commencing 23 March 2020. As well as loans, there are many other types of finance supported by the programme, depending on the provider. You can find out what type of finance they provide on the partner page.

The Scheme will be provided by the British Business Bank through participating providers, and will, in theory, offer more attractive terms for both businesses applying for new facilities and lenders. Significantly, the scheme provides the lender with a government-backed guarantee of 80% against the outstanding facility balance, not the small business. Government says this will potentially enable a ‘no’ credit decision from a lender to become a ‘yes’, however the credit decision will be taken by the provider and the borrower always remains 100% liable for the debt.

The Government will cover the first six months of interest payments, but the business remains liable for repayments of the capital. The maximum value of a facility provided under the scheme will be £5 million pounds (the original announcement suggested a maximum value of £1.2 million.)

To be eligible for support the business must:

• Be UK based, with turnover of no more than £41 million per annum
• Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support – 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;
• Have a sound borrowing proposal, but insufficient security to meet the lender’s requirements

We are told that full eligibility criteria will be published shortly and that finance terms will be from three months up to ten years for term loans and asset finance and up to three years for revolving facilities and invoice finance.

Please note that a limited number of further eligibility restrictions do apply. Full details can be found here. Almost all business sectors are eligible, however there are a small number of excluded/restricted sectors arising primarily from EU de minimis-State aid rules. 

The main problems with these measures, as I see them, are that the business must:

1. a)  Have a sound business proposal, but how does it prove this if it has had to close or suffered a significant reduction in sales. The provider will want to know how and when the borrowing will be repaid – a question that is probably impossible to answer;
2. b) Offer security to meet the lender’s requirements which almost certainly means having to provide a personal guarantee. Remember that in the event of default the government guarantee is to the provider (the bank) and not the business or individual;
3. c) Be viable, but some businesses will inevitably become insolvent through no fault of the owners. How can they take out a loan if they think they may be unable to repay it?

The British Business Bank advises businesses to approach a number of lenders – “to apply for a CBILS-backed facility, businesses may wish to consider approaching one or more participating lenders to discuss their borrowing needs.” As if businesses already struggling to survive have time for that!

2. Small Business Grant

Under this measure, the government will provide additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBBR). This will provide a one-off grant of £10,000 (previously announced as being £3,000) to businesses currently eligible for SBRR or rural rate relief.

If your business is eligible for SBRR or rural rate relief, you will be contacted by your local authority – you do not need to apply – and funding for the scheme will be provided to local authorities by government in early April. We are told that guidance for local authorities on the scheme will be provided shortly so even they don’t know yet how it will work.

This is going to present huge problems for local authorities that may already be under pressure with staff becoming ill and self-isolating, and with training necessary to enable staff to manage the distribution of grants. As soon as the guidance to local authorities is made available I’ll provide an update.

3. Tax help for small businesses

HMRC has a set up a telephone helpline to support businesses and self-employed people concerned about not being able to pay their tax due to coronavirus. Their official guidance says:

The helpline allows any business or self-employed individual who is concerned about paying their tax due to coronavirus to get practical help and advice. Up to 2,000 experienced call handlers are available to support businesses and individuals when needed. If you run a business or are self-employed and are concerned about paying your tax due to coronavirus, you can call HMRC’s helpline for help and advice: 0800 0159 559. The helpline number is in addition to other HMRC phone contact numbers.

The government says that for those who are unable to pay their tax due to coronavirus, HMRC will discuss their specific circumstances to explore:

• agreeing an instalment arrangement
• suspending debt collection proceedings; and
• cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately.

Whilst every taxpayer should decide for themselves the action they should take, the advice I am giving my clients is to withhold all their tax payments for the time being until they have carried out a detailed assessment of their financial position and prepared a cash flow forecast covering at least the next 13 weeks.

 

HMRC will not agree to this position, if asked, although for many businesses contacting HMRC (even with the promised 2,000 staff wherever they are going to come from) will be all but impossible, so after you have tried, I suggest writing a polite letter to say that in view of the coronavirus pandemic you will be unable to pay your tax until further notice and conserve the vital cash within your business.

Commentary – a personal view

It is very unlikely that these measures alone will be sufficient to prevent substantial numbers of small businesses failing due to lack of cash and individuals and families suffering because of a lack of income.

More measures such as price controls, rationing of essential supplies, moratoria on utility payments, allowing rent (as well as mortgages) to be unpaid and freezing repayments on bank loans, hire purchase and car loans will probably be necessary in the coming weeks.

Even these measures may not be enough if the pandemic continues into the summer months; most people have little or no savings to fall back on and so measures to ensure that everyone receives enough income (in whatever form) to provide the essentials for their families will be necessary. Without this support social unrest is a distinct possibility (for which the government must already be making plans).

 

**** BREAKING NEWS ****

Look out for an announcement from the Chancellor this afternoon (Friday 20^th March) about support for workers. Hopefully this will include the self-employed. I will update this blog later with details of any scheme that is announced.

 

Many businesses are already technically insolvent but just haven’t run out of cash yet. This applies to most banks and other lenders such as Building Societies, whose customers – if asked – would be unable to repay their debts. The stocks and shares of many large businesses will become worthless; the value of pension funds will disappear and the housing market will collapse.

I sincerely hope things don’t become this bad…..but isn’t it better to be prepared if they do?

 

Noel Guilford

20^th March 2020.

 

We will of course keep you up to date with any additional support measures as soon as we have them.

If you know other business owners who might need help with this stuff please feel free to share or forward - I just want to help as many people as I can.