The coronavirus pandemic continues to disrupt lives across the world and has had an unprecedented effect on the economy as small businesses, along with larger enterprises fight to stay afloat, avoiding store closures, job redundancies and permanent cash flow damage. As an emergency response to Covid-19, the government announced a series of financial support measures to stabilise businesses throughout this period of economic uncertainty.
On a local level, business distress data from Real Business Rescue, shows that 49,548 businesses in the North West were in financial distress during Q1, a figure which is expected to spike for Q2 due to the coronavirus pandemic. As local businesses in the food industry adapt to offering a delivery-only service and non-essential retail businesses were given the green light to open shop on 15 March 2020, this is a clear sign that the economy is slowly stepping out of forced dormancy.
As businesses review the damage caused, here are some key support measures which could revive cash flow and restore health.
Coronavirus Business Interruption Loan Scheme
The Coronavirus Business Interruption Loan Scheme (CBILS) is designed for small to medium-sized businesses, offering emergency finance up to £5 million. The government will guarantee 80% of the finance to your lender and no interest and fees will be payable for the first 12 month period.
As a result of the pandemic, British Banks have been banned from requesting personal guarantees on emergency funding under £250,000, such as loans.
Bounce Back Loan Scheme
The Bounce Back Loan Scheme has been designed to support small businesses in the UK, unlocking capital to help them withstand the pressures that continue to be faced by small businesses due to the slowdown of the economy and social distancing measures following Covid-19.
The micro-loan scheme is capped at £50,000 and businesses will be able to apply for funds worth up to 25% of their turnover. The entire loan will be government-backed and interest will not be payable for the first 12 months.
Deferral of VAT Payments
The next quarterly VAT payments have been temporarily deferred to help businesses manage company cash flow during the pandemic.
If you’re a UK business and you’re due to make a VAT payment between 30 March 2020 and 30 June 2020, you can continue with your payment as usual or choose to defer it. If you decide to defer your VAT payment, this should be paid in full by 21 March 2021. If you’re unable to afford VAT payments, a Time to Pay arrangement scheme may be better suited.
HMRC Time to Pay Arrangement
The Time to Pay arrangement scheme has been extended, giving relief to businesses unable to make VAT, PAYE or Corporation Tax payments. If you’re experiencing cash flow problems as a result of Covid-19, or due to financial distress before the pandemic, HMRC may grant you more time to pay or restructure your payments into affordable instalments. A Time to Pay arrangement with HMRC typically lasts up to 12 months. If you are struggling to fulfil payments to HMRC, this may be a suitable solution to give you some breathing space.
When assessing your situation, HMRC will take into consideration the viability of your business on a long term basis, the likelihood of your chances of keeping up with a Time to Pay arrangement and alternative solutions if a TTP arrangement fails to help the situation.
Business evictions – In response to the coronavirus pandemic, the property market has offered breathing space to landlords if tenants are unable to make rent payments. Business tenancies cannot be forfeited following instruction from the government until the end of June 2020, however guidelines are always changing. During this period, bailiffs will be unable to enforce evictions and landlords will be unable to get eviction orders.
Fast track invoice payments – Many large suppliers are taking the responsibility and initiative to speed up payments to small businesses to help them stay afloat during the pandemic. Morrisons have set the example by announcing that suppliers with turnovers of up to £1m will be paid immediately, leading the way for other large companies to follow the same initiative.
If your business is in financial distress and the damage caused is irreparable, you may benefit from seeking restructuring or company liquidation advice from a licensed insolvency practitioner.
Keith Tully is a partner at Real Business Rescue, a business rescue and recovery expert with 30 years’ experience in the restructuring and turnaround industry, assisting financially distressed businesses.