As the leading firm of Independent Corporate Recovery advisers in the Thames Valley, we are already receiving numerous calls from understandably concerned management of companies, seeking advice on what to do over the coming months. The governments announcement to avoid all unnecessary contact with others and to work from home where possible is totally unprecedented. We do not have many of the answers and would dispute anyone who claims to do so, however there are actions that management can take in preparation of the hard times ahead.
The Government Support
On 17 March 2020 the Chancellor set out in some detail a package of temporary and targeted measures to support businesses through the period of disruption caused by COVID-19.
The package includes;
· Statutory sick pay relief for SME’s
· Business rates relief for small businesses and pubs
· Small business grant funding of £3,000 for all businesses in receipt of Small Business Rate Relief
· The Coronavirus Business Interruption Loan Scheme (“CBILS”) to support long term viable businesses who need additional finance for cashflow issues.
· The HMRC time to pay (“TTP”) Scheme
The reality is that the disruption is so severe that many businesses will need assistance in the form of the CBILS and TTP, and that the other measures will be insufficient on their own.
The Scheme will be delivered by the British Business Bank (“BBB”) and will launch in “a matter of weeks”. Whilst BBB will provide a guarantee of 80% of the loan, the loans are expected to be approved and made by the clearing banks and other authorised lenders. There will be per lender caps and the scheme will support loans of up to £5m. At the time of writing, the clearing banks are not aware of the terms and detail of how the scheme will operate. “A matter of weeks” needs to be “a matter of days” as some businesses do not have weeks in the current circumstances. We understand that further detail will be available next week.
The National Loan Guarantee Scheme (“NLGS”) was launched in 2012 to offer cheaper loans, and more importantly was government guaranteed. This facility is now closed, however the general criteria for a successful application, was a company’s ability to demonstrate viability following the granting of such facilities. It is also expected that this scheme will only be available where no other way of borrowing money is possible ie it will be a loan of the last resort. The criteria will clearly have to be relaxed as the government has indicated that the new scheme is a bridging loan available “to support long term viable businesses”.
The expected Criteria
The key would therefore seem to be to be able to demonstrate “long term viability”. We would therefore recommend that management commence immediate work to;
· Demonstrate that their business was viable prior to the current world crisis;
· Demonstrate by forecasts that the applied for loan will be sufficient to enable to business to survive for the next 3-6 months of disruption; and
· As far as possible demonstrate that after the current crisis, viability can be restored and the business is capable of repayment of the loan. We appreciate that this will be dependent upon the eventual length of the loan, which is not yet revealed. The NLGS was for 1-5 year loans.
The process when introduced is unlikely to be instantaneous as the NLGS quoted a 3 week assessment period, and whilst the government guarantees 80%, the Banks exposure remains at 20%. We do not believe that personal guarantees will/should be required based upon the Chancellors comments to date, and as we are literally in a world of uncertainty, any such requirement would render the assistance extremely ineffective.
Our trade association R3 do not as yet have any further details, however believes that further announcements will be made by mid next week (25 March 2020).
Where possible do not make drastic decisions if the business was viable before the crisis and a CBILS loan may be a solution that prevents an insolvency process.
· Utilise the services of your accountants and solicitors in order to bring your accounts up to date and prepare forecasts for both the disruption period, and thereafter.
· Consider short term assistance from HMRC in the form of TTP agreements in order to preserve cash until the Chancellor reveals the details of the proposed assistance. A national helpline number has been provided which is 0800 015 9559 and HMRC have apparently taken on an additional 2,000 staff to help.
We are in totally unprecedented times with developments on a daily basis and therefore we urge managements to prepare now as the coming weeks will be crucial. Should you wish to discuss matters on a confidential and without charge basis then please do not hesitate to call one of our partners who will try to assist A further update will be sent when the relevant details are released, and elements of the above may already be out of date.
If you require any further information please don’t hesitate to call one of us on the numbers below;
Paul Ellison 07967 471211 / firstname.lastname@example.org
Robert Keyes 07500 933 022 / email@example.com
Gareth Roberts 07979 706 392 / firstname.lastname@example.org
David Taylor 07855 231 103 / email@example.com