Covid 19 – Coronavirus Business Interruption Loan Scheme

Covid 19 - Coronavirus Business Interruption Loan Scheme

20/03/2020 Update

At the Budget delivered on 11 March, the chancellor announced a new loan scheme which, in his speech on 17 March, he extended further. The scheme in principle is designed to support banks to make lending available as opposed to direct loans to business from government. The current criterion are:

  • Businesses with a turnover of less than £41m are eligible to apply.
  • The maximum debt amount available will be £5m
  • The guarantee is available to cover a wide number of lending types, for example, loans, overdraft or invoice finance.
  • The debt will benefit from a 6 month interest only period. The government have said they will cover the first 6 months interest.
  • The debt will be provided by banks and banks will be able to apply for a guarantee from the government which will cover 80% of the losses they suffer should the loan become unrepayable.
  • The terms available will be between 3 months and 10 years for term loans and asset finance and up to 3 years for revolving facilities (overdraft) and invoice finance.
  • The UK is still required to comply with the EU state aid rules and so any one applying for a loan under the scheme, needs to consider this if you have received state aid in the last 3 years. This could be by way of a grant or other government back guarantees.

It is worth noting that the loan scheme is predicated on the bank you apply to making a credit assessment of the loan request. We have spoken with a number of high street banks and, at the time of writing, the banks have not relaxed their existing lending policies, meaning you still need to present a “sound borrowing proposal” demonstrating your ability to repay the debt in order to qualify. Of the banks we have spoken to they expect to be briefed with regards to how the scheme will be implemented and whether there will be any relaxation to current lending policies.

Some of the lenders have suggested that it seems likely, that so long as the business was a viable borrower before the effects of coronavirus on the business, and that the need for borrowing is merely a cashflow issue due to coronavirus disruption then there are likely to look favourably on loan requests. However they would still require a cashflow forecast to demonstrate how the business intends to repay the debt over time and how individual borrowers have calculated the amount needed. Additionally, there is an expectation from frontline bank managers that the banks will not also request Personal Guarantees from the directors of business, as is commonly used in other circumstances, but this detail has yet to be verified.

There is some conflicting information on the likely timing of the start of the loan scheme, the governments own information suggests that this will be available from 23 March 2020, but the banks we spoke to have not yet been briefed although they are expecting to be.

The banks we have spoken to have suggested that one practical and relatively simple to implement strategy is to apply for a payment holiday on any existing debts. There are often powers to do this at a local level within the banks for a short time say between 3 to 6 months. This could mean a quicker decision than if the request needed to be escalated further up the banks’ decision structure.

Additionally, of the banks we have spoken to, the local managers are becoming overwhelmed with the volume of contact and requests for support and so it is worth noting that if help is required the timeframe that this can be given is likely to be longer than would normally be expected. It is therefore advisable to give as much notice as possible for any help required.

There may also be the possibility that any banking covenants on existing debts are breached if you experience a downturn in your business. We would advise speaking with your bank manager to understand how they will treat these events in the current exceptional situation. You do not have to wait until a breach of a covenant takes place, this can be simply part of your contingency planning.

It is worth noting that this is an exceptionally fluid situation, with new information being released daily and so we will endeavour to keep you updated as we are made aware of new information.

Grants

There are many grants available to businesses for specific reasons, sectors and geographic locations, which have been in place for a number of years. Below is a summary of the new grants announced by the government in relation to the Coronavirus outbreak for businesses in England only. Wales, Scotland and Northern Ireland’s devolved governments will set their own rates.

Small businesses
Any business that currently qualifies for Small Business Rates Relief, i.e. with a rateable value of below £15,000, can now also qualify for a grant from the government of £10,000. This is not an application process, current government advice is that local councils will contact qualifying businesses and will issue the grants. The local councils will be provided with the funding by government in “early April.”

SME’s
Any businesses in the retail, hospitality or leisure sectors, regardless of their rateable value, will now also qualify for a business rates holiday for 12 months. Additionally, any business in those sectors, with a rateable value of under £51,000 can also apply for a grant of up to £25,000.

Pubs
The discount that pubs, with a rateable value of below £100,000, receive on their rates will be increased from £1,000 to £5,000,

The government have suggested that any queries relating to eligibility or provision of the above reliefs should be directed to local authorities, with the government providing guidance to local authorities “shortly”.

This suggests that a sensible course of action is to contact your local authority rates office at the earliest possible time to register your application if you qualify. Again, it is likely that these help lines will be quickly clogged up by the number of calls, so patience may need to be deployed.

Statutory Sick Pay
he government will bring forward legislation that will allow small and medium businesses and employers to reclaim statutory sick pay (SSP) paid for sickness absence due to Covid19. However, the government have suggested that the implementation of this may take months, not weeks or days, and are “working with employers to set up the repayment mechanism for employers as soon as possible”. The qualifying criterion are as follows:

  • Employers must have fewer than 250 employees as at 28 February 2020.
  • The repayment will cover 2 weeks SSP per qualifying employee.
  • The sickness absence must be by reason of Covid-19.
  • The employees do NOT require a GP fit note to qualify.

Tax - Time to Pay arrangements

HMRC have now set up a dedicated helpline for businesses and the self-employed (0800 0159 559) who require assistance in paying outstanding tax liabilities. There is some anecdotal evidence that HMRC are relaxing the requirements and likelihood of securing Time-to-Pay arrangements which allow a taxpayer to spread out the cost of taxes due including VAT, PAYE and Corporation Tax. HMRC seem willing to discuss, through the helpline, the agreeing of instalment payments, suspending debt collection proceedings and the cancellation of interest and penalties as a result of administrative difficulties contacting or paying HMRC.

These are exceptional times for UK businesses and we will continue to support our clients in whatever way we are needed through these events. Please do not hesitate to contact us should you need further information or support.

Please keep well and our best wishes to you and your loved ones.

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