Coronavirus Survival Guide for UK Small Business Owners
What support is available for small business owners in the UK?
Working Capital Support:
A. Loan Scheme
B. Cash Grants
C. Future Fund
Fixed Expenses Support
D. Wage Support
E. Tax Deferral
Unsure how to go about these options? Here's a summary.
A. Coronavirus Business Interruption Loan Scheme (CBILS)
What is CBILS?
A government scheme to help SMEs affected by COVID-19 to access financing. The Government provides lenders with a guarantee up to 80% of advanced amount to give lenders further convidence in providing new loans.
Amount: as little as £5k up to £5m
Term: up to 6 years. No repayment first 12 months
Interest & fees: No interest or fees for 12 months (government will make a payment to lender to cover the first 12 months of interest payments and any lender-levied fees)
Types: Loans, overdrafts, invoice finance, asset finance
Guarantees: Banks are banned from asking borrowers to guarantee loans with borrowers’ savings or property when borrowing up to £ 250,000
Any UK-based businesses except banks, building societies, insurers and reinsurers(but not insurance brokers), public-sector organizations including state-funded schools
Businesses considered viable by banks were it not for the COVID-19 pandemic
Note: Access to this scheme has recently been opened to smaller businesses facing cashflow difficulties who previously would not have been eligible for CBILS for not meeting requirements for a standard commercial facility, so consider re-contacting your lender if you have previously been unsuccessful in securing funding.
What is my interest rate?
Guidance has been that your interest rate should reflect your business’s credit worthiness in a regular business environment, so your interest should not be any higher than what you would typically be charged.
In fact, your overall rate should be lower as Bank of England has cut the base rate to historical lows in light of the expected downturn due to the coronavirus. The base rate has been reduced from 0.75% to 0.1%.
For reference, HSBC has been offering existing UK customers with following terms:
Interest after 12 mo interest-free period
3.49% + base rate (<3 year term)
3.99% + base rate (>3 year term)
Loan arrangement & prepayment fees: None
Loan amount: £ 10k – 5m
Term loan & asset finance facilities: up to 6 years
Overdrafts & invoice finance facilities: up to 3 years
Existing HSBC business customer
Use funding to support business activity in UK
Generates 50% or more of business turnover from trading activity
None for facilities under £ 250,000. May be required for facilities above £ 250,000 but exclude principal private residence and recoveries are capped at maximum of 20% of outstanding balance
How do I get a CBILS loan?
1. Contact an accredited lender here. Tap an existing relationship for faster processing speed.
2. Prepare standard documents:
Details of assets
Need help with these documents? Our volunteers may be able to help! Sign up here.
3. Wait for approval
Check in with your relationship manager on a weekly basis. Banks have been telling people that the process would take anywhere from 2 - 5 weeks.
What is the latest status of CBILS loans?
Demand is greatest for ultra-low sums such as £5-25k; however, only RBS has been providing loans < £25,000. Recently, Lloyds and HSBC have indicated that they will be looking to lend smaller quantum as well.
There is a backlog of applications at banks. So far, only 1-2% of all inquirers (21% of 28,460 formal CBILS applications) have received loans. As of April 15, 6,020 companies have borrowed £ 1.1bn in 3 weeks (<1% of outstanding loans to SME before pandemic of £ 155bn) (Bank of England, Feb). The scheme administrators (the British Business bank) have come under criticism of excessive bureaucracy, reluctance among lenders, long processing speeds of applications. Royal Bank of Scotland accounts for almost half of value and volume.
Government is considering providing 100% guarantee for loans below £25,000 (up from current 80% guarantee)
Read more at the Government's business support site.
B. Cash Grants: Small Business Grant Fund (SBGF) and Retail, Hospitality and Leisure Grant Fund (RHLGF)
What is the SBGF and RHLGF?
1. SBGF provides Britain’s smallest 700,000 businesses with £3,000 to £10,000
2. RHLGF provides small retailers, leisure and hospitality firms with bigger grants of £25,000.
Because grants are allocated per business property, a single business can receive multiple grants and may receive grants from separate local authorities.
How do I apply?
To apply for small business rate relief, contact your local council here.
Is my business eligible?
For SBGF, your business is eligible if your property’s rateable value is less than £15,000 according to the open market rental value on April 1, 2015, carried out by the Valuation Office Agency (VOA). For properties with a rateable value of less than £ 12,000, you do not pay business rates in any case. The rate of relief will go down gradually from 100% to 0% if your property’s rateable value is between £12,001 and £15,000.
For RHLGF, any business with business rates between £15,000 and £51,000 is eligible.
What are business rates?
Business rates are a charge businesses pay on non-domestic properties (ie. shops, offices, pubs, warehouses, factories and holiday rental homes).
Business rates are payable by the occupier of the premises (can be landlord or tenant). Sometimes the landlord of the property charges the occupier a rent that also includes an amount for the business rates. It remains a private matter between the landlord and occupier to decie who is responsible to make payment, however the bill will remain in the name of the occupier, and if it is not paid, action will be taken against the occupier, not the landlord, to recovery the amount due.
What is the latest status of business grants?
As of April 20, £6.11bn has been paid out to 491,725 business properties in England. 7% of eligible businesses had received one of the grants offered by the Treasury.
C. Coronavirus Future Fund
What is the Future Fund?
Announced April 20,2020, this £1.25 billion government support package provides convertible loans between £125,000 to £5m to innovative companies facing financing difficulties due to coronavirus, subject to equal match funding from private investors.
Based in the UK
Able to attract equivalent match funding from third-party private investors
Has previously raised at least £250,000 in equity investment from third-party investors in the last 5 years
Funding can only be used for working capital purposes (ie. not for repayment of borrowings, dividends or payments to staff, management, shareholders or consultants
How does this work?
Basic Terms of Convertible Loan
Interest rate: Government receives min 8% p.a. (non-compounding), paid upon maturity of loan
Term: Loan matures after max of 36 months
Loan converts to equity on company’s next qualifying funding round* at a minimum conversion discount of 20% to price set by that funding round.
(For clarity sake, only the principal converts at the 20% discount rate. Accrued interest converts at relevant price without discount rate.)
*Qualifying round = equity raised in new round needs to be at least the aggregate amount of convertible loan funding
On a sale or IPO, loan either
a) converts into equity at 20% discount to the price set by most recent non-qualifying funding round** OR
b) is repaid with a redemption premium that is 100% of principal, whichever will provide the higher amount for lenders.
**If the most recent non-qualifying round took place the conversion price will not include a discount rate
Negative pledge applies
Scheme launches in May 2020. Check here for updates.
D. Job Retention Scheme
What is the Job Rentention Scheme?
Grant that helps owners retain their employees by covering wages for employees on temporary leave (‘furlough’)
It covers 80% of employees’ monthly wage cost up to £ 2,500 per month, plus the Employer National Insurance contributions and pension contributions on that subsidised furlough pay
Furloughed workers are defined as those who were employed on 28 Feb 2020 and have been told to stop working but are kept on the payroll
Applies 4 months of wages beginning 1 March 2020. May be extended if necessary.
What should I be aware of when furloughing workers?
Get agreement in writing and be clear how much employee will get paid during furlough, date furlough starts, when the furlough will be reviewed, how to keep in contact during furlough
Keep furloughed woekrs on employer’s payroll and continue employment contracts
Make sure furloughs last at least 3 weeks. However you can furlough a worker more than once.
More information here
Is my business eligible?
All UK employers are eligible if they have a UK bank account, have a PAYE scheme on or before 19 March 2020 and enrolled for PAYE online.
Employees can be any type of employment contract (full-time, part-time, agency, flexible or zero-hour contracts)
Foreign nationals are eligible to be furloughed on all categories of visa.
When on furlough, employees cannot undertake work for the business, including providing services ore generating revenue. Critical business tasks should be allocated to staff that are not furloughed.
While on furlough, the employee’s wage will be subject to usual income tax and deductions
3 consecutive week minimum furlough period
When employees return to work, they must be taken off furlough
How do I claim for wages?
Online service available 20 April 2020 here.
What if my employees becomes sick or was required to self-isolate due to COVID-19?
The government offers Statutory Sick Pay Relief, where employers with fewer than 250 employees (as at 28 Feb 2020) are entitled to reimbursement of statutory sick pay for up to 2 weeks per employee for COVID-10 related absences. Statutory sick pay is £ 95.85 per week from 6 April 2020. Employers pay for Sick Pay Relief themselves and may qualify for a rebate for up to 2 weeks. Self-isolation days must be at least 4 days.
NOTE: If a furloughed employee becomes sick and is moved onto statutory sick pay relief, employers can no longer claim for the furloughed salary. By keeping sick furloughed employees on the furloughed rate, employees remain eligible to claim for these costs through furloughed scheme.
Read more at official Government website.
E. Tax Deferral
As of April 27, below two tax reliefs are offered by the UK government:
1. Deferred VAT Payments
Businesses have option of deferring VAT payments without interest for 3 months for payments due in the period from 20 March 2020 to 30 June 2020
You still need to submit your VAT returns to HMRC on time
You do not need to tell HMRC that you are deferring your payment
2. Deferred Business Rates
12-month business rates holiday introduced for all retail, hospitality and leisure and nursery businesses in England for 2020/21 tax year
You do not need to contact your local authority. Holidays will apply automatically to your next council tax bill in April 2020.
What is an eligible retail, hospital, or leisure business?
Properties which are mainly used:
As shops, restaurants, cafes, drinking establishments, cinemas and live music venues. Estate agents, letting agents and bingo halls have also now been added to the qualifying use list.
For assembly and leisure which will include sports grounds and clubs, museums, leisure facilities and gyms, theatres and tourist attractions
As hotels, guest and boarding premises and self-catering accommodation – this will include caravan parks and sites
As childcare providers where premises are used for provision of the Early years Foundation Stage
F. Rental Relief
The Coronavirus Act 2020 has suspended a landlord’s ability to take forfeiture action for business tenancies, so that business tenants who cannot pay their rent will be protected from foreclosure – a date capable of being extended by government. This forfeiture moratorium includes not only annual rent but any sum which a tenant is liable to pay (including insurance, service charge and interest).
Important to note:
Rent is NOT being waived (unless otherwise negotiated and put in writing by the landlord) and will still need to be paid at the end of the forfeiture moratorium period along with interest accrued during that period
Landlord can still pursue other remedies, such as:
Pursue an existing guarantor
Withdraw from rent deposit to cover short-term rental non-payment. After the 3 month forfeiture moratorium, tenant will still need to replenish the deposit as landlord could have the right to forfeit the lease otherwise.
Forfeiture moratorium is not applicable to leases with terms of six months or less
What if I am unable to pay rent after the 3 month forfeiture moratorium?
Don’t wait until after 30 June 2020 (end of moratorium period) to contact your landlord. Tenants with cashflow difficulties should consider proactively discussing a short-term workout plan with your landlord. This will provide certainty to both you and your landlord, which is welcomed in this environment.
From a landlord’s perspective:
Landlord also has to pay its own debt service on the property, maintenance costs, and property taxes
Depending on the property's location and desirability, landlord is disincentivized to find a new tenant in this uncertain environment while property sits vacant
When deciding whether to agree to rent concessions, Landlord will evaluate the tenant’s ability to stay in business and resume paying rent in the medium term, so it’s important to discuss your short and medium term business plans and capabilities
Review your contractual lease ahead of time, keeping an eye out for:
Guarantees – many small businesses have provided a bank guarantee and financial accounts, even charges on personal property. How valuable are the assets or accounts under guarantees?
Lease term - how many months do you have left? When is your lease up for renewal or rent reviews?
Lease space - how much space do you need moving forward? Are you considering pivoting your business model such that you will need less space? Even as the economy recovers, with fewer customers dining in, you might not be able to fill your original space and will have to rely on takeouts more.
Basic rent & turnover charge - Is most of your rent fixed or as a percentage of sales turnover?
Break clause - do you have the ability to terminate and is there a penalty charge?
Service charge, building insurance, building rates - who is responsible and is this baked into your basic rent?
Deposit - many contracts have a minimum amount of 3 months' rent.
Things a tenant could ask for:
If your lease term is ending soon, you could ask for cheaper monthly rental payments. Market conditions have significantly worsened for retail rental properties, so you may be able to get a landlord to agree to this.
Rent abatement / holiday
If you aren’t bringing in enough revenue now, but you expect things to pick back up again down the road, you can ask for a rent abatement. A rent abatement is like a loan. It means you won’t pay rent for an agreed-upon amount of time, but when those months are up, you’ll back pay the rent in full, sometimes with interest. You can also request a partial rent abatement, meaning that you’ll pay, for example, only 50% of the full rental price for the next three months, and then you’ll later pay back the other 50%, sometimes with interest. In exchange for this concession, a tenant could offer to increase the term of the lease. The landlord could view a longer lease duration as a positive because it removes the uncertainty in finding a new tenant.
Turnover Rent in lieu of Base Rent
In this environment, leases with higher proportion of turnover rent vs. fixed base rent is ideal. Afterall, with no turnover, there is no turnover rent! Consider asking your landlord for deferred base rents for a few months, afterwhich you will repay the rent in full, but from operating cash flows. This could make a big difference to your liquidity management if you only pay rent only when your business starts making revenue again.
Subleasing your space in the building is an option, too, if another company can use the space while you’re not occupying it or if you have extra office space your business isn’t utilizing. Many landlords allow sublessors provided that doing so doesn’t conflict with lease terms of other tenants of the property.
Some tips when approaching your landlord:
Calling is better than emailing as it is more personal and allows you to hear your landlord's tone and vice versa
Know what to ask for and avoid vague questions
If your business can't make ends meet because of COVID-19, it's okay demonstrate that. To help your landlord instill confidence in your business viability, you can include previous and current financial statements. More importantly, you need to have a well thought out business plan in place that shows how you will be able to make rent payments.
If the landlord is unwilling to provide concessions, it's okay to re-negotiate, and even seek help from a tenant broker
G. Mortgage Relief
The Financial Conduct Authority (FCA) issued guidance requiring mortgage lenders of the following:
Mortgage lenders to grant borrowers a payment holiday for an initial period of 3 months, if borrowers experience payment difficulties as a result of COVID-19. There cannot be additional fees charged (other than additional interest) as a result of the payment holiday.
Payment holiday cannot have a negative impact on the customer’s credit score.
Mortgage lenders cannot repossess the mortgaged property unless the borrower has agreed that it is in their best interest to do so.