What business decisions are we going to be faced with over the coming weeks?
Well, embracing the uncertainty but keeping it simple and focusing on what we know, there is:
- continued business planning and cash flow monitoring/forecasting to be done (with strategic decisions to be made flowing out of that);
- continued reviews into whether the business needs COVID debt options (assuming you need assistance at all, and if you do, non-debt options are exhausted or ruled out); and
- the Government’s direction on lockdown easing needs to be considered and reviewed (with strategic decisions to be made flowing out of that).
1. Business planning and cash flow monitoring/forecasting
If you haven’t already, please do review our article “How resilient is your business?” here. It is proving to stand up as a good checklist for critically reviewing your business and planning to survive.
In terms of a more detailed look at cash flow, if you have Xero, please take a look here for preparing a cashflow forecast. Otherwise, you may find the ACCA’s article on “Developing cashflow in a crisis” helpful, which can be found here.
Any questions in relation to cashflow, please contact the Revel team.
Flowing out of your cashflow reviews and decisions, you may want to look again at your COVID support options. The Government have recently published a helpful tool that cuts through the waffle of the guidance, and lists what support is available to you specifically. It can be found here.
In terms of more detailed business planning and to help businesses write/update their plan, ICAEW’s Business and Management Faculty has made one of its special reports open to all and is available here. It is a guide to writing a business plan. Banks are still requiring business plans as part of loan applications (although see below in relation to a relaxation on CBILS loans). Pages 23 to 25 provide a checklist for what to include. The checklist was written for normal times and for broad purposes but you will be able to pare it back to the minimum required by your bank, or for your own needs.
Should you need any assistance with a business plan, please do not hesitate to contact the Revel team.
2. COVID debt options
There have been two key changes recently:-
- a new Bounce Back Loan Scheme (BBLS) has been announced- starting Monday (4 May 2020); and
- the UK’s seven largest small business lenders have relaxed evidence requirements for applications to the existing Coronavirus Business Interruption Loan Scheme (CBILS).
Bounce Back Loan Scheme (BBLS)
The chancellor has announced a new Bounce Back loan scheme, allowing small businesses hit by the impact of coronavirus measures to apply for up £50,000, with the government guaranteeing 100% of the advance.
The Chancellor’s accompanying letter to the banks, wadvises he is setting the rate at 2.5%, and that the lenders should be offering flexible loan terms of up to 6 years. It is also noteworthy that these loans could potentially be accessed by sole traders, unincorporated associations and partnerships fewer than four people.
According to an accompanying Government press release, businesses can apply for a minimum of £2,000 up to a maximum of £50,000, or 25% of business turnover, with the government paying the interest for the first 12 months.
The scheme will open from 9 am Monday (4 May 2020), and according to the Chancellor most loans will be paid within 24 hours of approval. Businesses will be able to access the loans through the existing network of accredited lenders. We would suggest you check whether your bank is running the scheme first.
If you have already received a loan under the existing Coronavirus Business Interruption Loan Scheme (CBILS), you will be exempt from applying for a Bounce Back loan, but you have until 4 November 2020 to transfer your CBILS facility to the BBLS.
A relaxation of the evidence requirements for the CBILS scheme
Following the creation of the government’s new Bounce Back Loans scheme (BBLS), further changes to the Coronavirus Business Interruption Loan Scheme (CBILS) have also been announced.
To speed up the provision of finance to small and medium-sized businesses under CBILS, the largest seven SME lenders (Barclays Bank UK, Danske Bank, HSBC, Lloyds Bank, NatWest, Santander and Virgin Money) have stated that rather than relying on businesses providing forecasts and business plans in applications, lenders will use their own information. We cannot say what this means, but it sounds less formal!
A joint statement from the seven largest SME lenders and UK Finance proclaimed: “Following the changes to the scheme announced today lenders will only ask businesses for information and data they might reasonably be able to provide at speed and we will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability.”
Debt solutions generally
You should carefully assess the implications of taking on debt finance and you should be comfortable that this is the right solution for your business at this time.
As a general warning, just because loan monies arrive within 24 hours does not make it necessarily right for the business. A two page loan application, is still going to have some hefty terms and conditions and repayment clauses to review and consider.
Businesses with existing finance should also consider other options provided by lenders such as capital repayment holidays, overdrafts and working capital extensions where appropriate. It should also be noted that Banks have been encouraged to support businesses who have successfully applied for furlough with their cashflow needs in advance of furlough grants being received. This means that very short term debt assistance might be available instead of larger facility commitments.
3.Easing of Lockdown
A plan should hopefully be released by the Government this week. We will provide some guidance as it is released.
In the meantime, for those on furlough, you must be on furlough for a minimum of 3 weeks at a time for a claim to be valid. You can go back on furlough but it is best to speak to us before making any decisions, as a wrong decision could potentially invalidate previous claims.
That being said, for those owner managed directors on furlough, you must continually balance the needs of the business and your director duties. Whilst a pragmatic view can be taken in relation to director duties, should you have any concerns, please speak to us sooner rather than later.
Other things to be aware of:
We were waiting for a change in the insolvency rules to sit alongside the Government COVID support measures. The Business Secretary, Alok Sharma MP, has now announced he will make changes to enable UK companies undergoing a rescue or restructure to continue trading, helping them avoid insolvency.
This will include enabling them to buy supplies while attempting a rescue, and temporarily suspending wrongful trading provisions retrospectively from 1 March 2020 for three months for company directors so they can keep their businesses going without the threat of personal liability.
Any directors with concerns about their company should seek our advice at the earliest opportunity.
A helpful reminder can be found here by lawyers Stevens & Bolton LLP of statutory duties owed by UK directors under the Companies Act 2006, the potential risks of continuing to trade while possibly insolvent, and actions that should be taken in order to mitigate those risks
If you are new to Revel and are keen to find out more, please call our consultant Will Bolter FCCA MAAT ATT (our designated COVID-19 response advisor) on 07379 451484 or contact us by email here.