Cash, cash, cash: Obtaining the valuable commodity of cash in the crisis

View our funding flowchart

The COVID-19 pandemic has disrupted many sectors significantly, exposing unique challenges never experienced before, and the pandemic continues to disrupt business as usual.

This article provides a guide to the main COVID-19 Government funding initiatives that are available for those operating in a sector facing pressure. The flowchart aims at highlighting the breadth of areas available from the Government that can provide much needed cash.

Obtaining the cash you need through Government loan schemes

Alongside furloughing, the clearest route for additional funding is through one of the loan schemes.

It is important to understand that these are not Government loans. The funds are provided by the banks/ lenders directly – the Government is guaranteeing the loans. Applying for a loan is very much dependent on each lender’s own criteria and there are even significant variations between different relationship managers within the same institutions.

The banks have experienced a colossal increase in loan applications since the schemes were launched; 15x-20x the norm. This led to a backlog of responses – the lenders just not having the capacity. It is also the case that small loans, those that are generally higher risk, are the biggest volume of applicants.

The Government has improved this by introducing the Bounce Back Loan Scheme. This provides a 100% guarantee for any loan up to £50,000. This has helped deploy funds to SMEs quickly with £24bn being deployed by 7 June and an average applicants success rate of c80%; some applicants have received the loan within 12 hrs of applying. Albeit, banks are now starting to restrict who can apply for these loans –prioritise existing customers.

For most SMEs, the main loan schemes available are CBILS and CLBILS. They are similar schemes.

At 7 June there had been 93,305 applications with only 51% being approved as at that date (worth £9.56bn). Importantly, there were a few fundamental changes to how these work during the initial weeks. So even if you have been rejected for these loans in the past, the British Business Bank is now recommending companies reapply.

• CBILS (Coronavirus Business Interruption Loan Scheme – British Business Bank)
  • Applicable to businesses with turnover less than £45m
  • Loans of up to £5m with 80% government guarantee
  • Available in the form of business loans, overdrafts, invoice finance and asset finance
  • The first 12 months of interest and lender-levied fees are covered
  • More than 40 accredited lenders

The Government has removed the need for lenders to apply a forward-looking test to obtain the guarantee. Banks no longer are required to assess forecasts to assess the viability of a business! However, as it is still the banks’ own funds that are being lent, and some of that money is at risk, the use of such a test will remain at their discretion, meaning they may wish to review on a case by case basis. 

• CLBILS (Coronavirus Large Business Interruption Loan Scheme – British Business Bank)
  • Applicable to businesses with turnover above £45m
  • Loans of up to £200m with 80% government guarantee
  • Available in the form of business loans, overdrafts, invoice finance and asset finance
  • Repayment terms of up to three years

Given the complexity of lending, our advice is that you should still produce forecasts to ensure the viability of your own business. Security and personal guarantees can still be requested (for loans above £250,000). Crucially, businesses must be able to justify that the funding required is because of legitimate business interruption, and not for other reasons.

If you are rejected by your incumbent funder, other debt providers are still available in the market.

Utilising tax measures for financial fluidity

There are also other Government backed schemes that can help cashflows. We highlight a number below:

CJRS Furlough Scheme

The CJRS furlough scheme remains available until 31 October 2020, but only for those employees who have already been furloughed for a minimum of 3 weeks before 30 June 2020. From 1 July 2020, the furlough scheme can be used on a flexible basis, allowing employers to agree with employees a week at a time to work part time on full pay on some days, and receive furlough pay on furloughed days. Work arrangements need to be agreed with the employee in writing in advance, but this will allow employers time to build their business up after Covid-19. Employers will be required to increasingly bear some cost of the furlough grant from 1 August to 31 October 2020, when the scheme will then close.

Research and Development Tax Credits

R & D Tax Credits can in certain circumstances be a source of cashflow during these challenging times. If your business is innovating, developing, or improving a product or service, you may be surprised to find you qualify for R & D tax credits; many assumed they did not.

The key is that your project must contain some technical uncertainty, so a good test is to think about whether your team thought the technological goal was achievable or not at the start of the project.

A successful R & D claim can bring a number of benefits to your business; funding tax bills, relieving cash flow pressures, funding the launch of another project, or generally helping your business grow and develop.

VAT deferral

If you are a UK VAT registered business and have a VAT payment due between 20 March 2020 and 30 June 2020, you have the option to defer the payment until 31 March 2021. VAT refunds and reclaims will be paid by the Government as normal.

TTP (Time-To-Pay)

In addition to VAT, for all other taxes (e.g. corporation tax, PAYE, national insurance) you can contact HMRC and ask for Time-to-Pay. You will be charged interest on amounts deferred, and we recommend you think about a repayment plan before speaking to HMRC as it improves your chances of success.  However, TTP is not available for payments relating to furloughed employees, where the furlough pay and associated costs are being claimed via the HMRC CJRS. PAYE tax/NIC on all furlough pay needs to be remitted at the normal time, even when TTP has been agreed.

However, TTP arrangements for PAYE/NIC exclude payments relating to furloughed employees, where the furlough pay and associated costs are being claimed via the HMRC CJRS. PAYE tax/NIC on all furlough pay needs to be remitted at the normal time, even when TTP has been agreed. Failure to do this will result in penalties and interest being charged.

Loss carry back claims

In the event of a trading loss, companies can seek relief by carrying the loss back to a previous profit-making period and reclaim the corporation tax from that period (this can include capital allowances). This needs to be within the last 12-month accounting period, during which the company must have been carrying on the same trade. However, you can change your year-end to potentially accelerate the loss relief.

Innovate UK grant

The Government has also launched a £750m COVID-19 ideas grant scheme, whereby 80% of the cost of projects which seek to mitigate the impact of COVID-19 can be reclaimed. Those in the Automotive sector may have opportunities here.

Practical steps to preserve business continuity

As is often the case, our recommendation for obtaining funding is to plan ahead and act early, providing the funder with, amongst other things, information on pre-COVID performance, measures implemented to preserve cash and jobs, and a forecast showing how the business can trade out of the crisis whilst servicing the existing and new debt burden.

Businesses should optimise working capital, whilst identifying and implementing measures that lessen the pressure on cash flow, identify sources of collateral that may secure access to additional borrowing and engage with active scenario planning that reflects the current level of market uncertainty.

Essentially, during this unprecedented time, you need to demonstrate you are in control of each of the aspects that fall within your authority and influence, and that you are taking all possible action to make use of all available reliefs and grants and minimise cash leakage.

We continue to keep track of all Covid-19 Government initiatives, and further information can be found on our Covid-19 hub.

Smith Cooper has supported several clients in need of cash, advising on what options are available and providing analysis and reporting performance. They have assisted in building credible forecasts, unpicking the complex nature of funding, and assessed whether clients are maximising the reliefs and grants available to preserve cash. To get in touch, please click here, or use the contact details listed below: