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COVID-19 : Finance

In a crisis cash becomes critical, it is the life blood of business. The Government’s announcements seek to address some of businesses concerns in this regard – from grants to loans to deferring payments of tax, as well as supporting wages of furloughed staff. Companies

But in practical terms, what are the things you can do?

1.   Make sure your finances are in order. Whether or not you are considering applying for external funding you should have a sensible plan to help you make decisions now and over the next few months. Funders are at the very least asking for:

  • Latest financial statements;
  • Latest management accounts;
  • How the business was trading before the Coronavirus hit;
  • The impact of the Coronavirus on the business;
  • What steps you have taken to mitigate risks and the impact of the Coronavirus – such as time to pay arrangements with HMRC, negotiating extended terms with suppliers, giving early settlement discounts to customers.

2.    Prepare a zero-based cash flow forecast for the next three months, at least:

  • Do this on a day by day basis to highlight the lows of a cycle allowing you to plan accordingly.
  • Be realistic with your receipts.
  • Consider reducing or part paying staff salaries – the Coronavirus Job Retention Scheme (CJRS) will support up to £2,500 or 80% of the cost of an employee’s salary if that employee would have been made redundant and you agree to keep them on (see more information below)
  • Consider how you will cover any shortfall. See 3 below
  • Having prepared a cash flow forecast and carefully considered the funding options, look to the medium term to make sure that you can pay it back. As difficult as it is no one wants to come out of the current crisis only to find that the businesses is drowning in debt it took on to survive. This is particularly relevant where you may be considering using personal guarantees or injecting cash in to the business from your own resources.

3.   Review your funding options:

  • Equity injection into the business – can you or someone else inject short/long terms funds into the business;
  • Third party debt:
    • do you have (and will you continue to have) invoices that can be used as collateral?
    • what other assets does the business have that can be used as security for a lender – e.g. property?
    • can you refinance plant and machinery or motor vehicles?
    • will you bank, or another, lend you money under the Coronavirus Business Interruption Loan Scheme (CBILS)? (see further information on CBILS below)
    • for larger organisations consider accessing the Covid Corporate Financing Facility through the Bank of England.
  • Consider how you can better utilise your working capital:
    • Running down stock and changing your reorder quantities. Many of us naturally carry too much stock or suppliers have higher than necessary re-order quantities. Look at how you can run your stock down, but do take account of what could be longer than usual lead times, so balance this with making sure you have enough. Also think, that order may well fall through the fall, so do not plan on your usual stock turns.
    • Extending credit terms with suppliers: ask suppliers to defer payments. Many larger organisations are being supportive of smaller customers at this difficult time, but make sure you do not spook them. One business asked for extended terms, only to be put on a pro-forma invoices basis!
    • Delay rent payments or ask to pay monthly with your landlords. It is possible that, to the extent they have borrowings secured on a property that your business occupies, they may get a mortgage holiday for three months – so they should be able to support your request.
    • Take advantage of time to pay arrangements with HMRC. They have clear instructions to support businesses, so contact them regarding time to pay arrangements for any PAYE or corporation tax – VAT has already been deferred from being collected from now until the end of June, any amount due will be due before 12 months from the original due date. Make sure that you make a note of your conversations with them and if you can’t get through note down the date and time that you tried so that in the event of a dispute later you can collaborate your actions.
    • Watch your debtors and collect your cash:
      • Review your debtors and keep on top of them, talk to your customers to establish whether they are going to be able to pay you – and when.
      • If you have credit insurance check with your insurer as to whether you remain covered for ongoing supplies to customers.
      • Consider offering your customers early settlement discounts to accelerate receipts and remove uncertainty from your collections and reduce the administrative burden of chasing debts, if appropriate.
      • For new customers consider whether you are prepared to give them credit and on what terms. Remember their credit rating is no longer an appropriate measure of whether they will be able to pay you. For service industries where you have little or no external cost of sale, this may be a way to keep staff busy (and see later how to access the Coronavirus Job Retention Scheme) but for product businesses where you are incurring external cost of sale, you may prefer to sell to new customers on a cash basis.

4.   Request the delay to filing your Financial Statements at Companies House. Companies House has included the impact of Covid-19 as a reason for delaying filing accounts. This is not automatic so you need to go online to request the extension, which will be automatically granted.

Coronavirus Business Interruption Loan Scheme (CBILS)

As a reminder the key features of the CBILS are detailed further below. The scheme is designed to support small and medium sized enterprises (SME’s) who don’t meet a lender’s normal lending requirements for a fully commercial loan or other facility, but who are considered viable in the longer-term.

The banks are having difficulty in dealing with the volume of requests for the loans – we have heard of one lender who will only deal with current customers and another who has re-employed staff that they had made redundant at the beginning of March in order to cope, so the better prepared you are the quicker you will get an answer.

To be eligible for a facility under CIBLS, your business must:

  • Be UK based in its business activity with annual turnover or no more than £45m
  • Have a borrowing proposal which, were it not for the covid-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty

Smaller businesses from almost any sector can apply for the full amount of the facility, although we have seen at least one bank restrict this to limits of turnover and wage cost.

The key features of the CBILS are as follows:

  • Up to £5m facility: The maximum value of a facility provided under the scheme will be £5m, available on repayment terms of up to six years.
  • 80% guarantee: The scheme provides the lender with a government-backed, partial guarantee (80%) against the outstanding facility balance, subject to an overall cap per lender.
  • No guarantee fee for SMEs to access the scheme: No fee for smaller businesses. Lenders will pay a fee to access the scheme.
  • Interest and fees paid by Government for 12 months: The Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.
  • Finance terms: Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
  • Security: At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

Perhaps most importantly of all – the borrower always remains 100% liable for the debt.

In applying for the loans are view from discussions with banks is that you should address some key questions:

  1. Would the bank have lent to you pre-crisis? The Bank of England has made it clear that this facility is not to be used to prop up pre-crisis failing businesses.
  2. What impact will the crisis have on your business and sector post crisis? Some industries will bounce back quickly whilst others could take years to recover.
  3. Does your business have a strong management team? The lenders will want to be comfortable that the people borrowing the money have the mettle to take tough decisions and the ability to navigate this crisis – after all the bank will be on the hook for 20% of any shortfall.

We are seeing a trend in how the banks are dealing with requests:

  • Up to £100,000 granted with little resistant and short form paperwork;
  • Between £100,000 and £250,000 – more difficult, debentures, where they do not exist are being asked for, but no personal guarantees;
  • Over £250,000 very difficult, full personal guarantees, except RBS/Natwest with most banks trying to push customers into normal borrowing facilities.

Finally don’t forget that the CBILS is not for everyone – so consider the other sources of finance referred to above.



We will seek to inform you with any critical updates as they occur, updating this Operational Guide for Management as necessary.

Should you have any comments, questions or wish to discuss any of the above with us or need help in deciding what to do please contact your usual EMC Consultant or Michael Pay on or +44(0)1273 945 984.

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