A discretionary fund has been set up to accommodate certain small businesses previously outside the scope of the business grant funds scheme.
The Business Secretary Alok Sharma and Minister for Regional Growth and Local Government, Simon Clarke spoke to local authorities in England to set out that up to £617 million would be made available.
This is an additional 5% uplift to the £12.33 billion funding previously announced for the Small Business Grants Fund (SBGF) and the Retail, Hospitality and Leisure Grants Fund (RHLGF), so up to £617 million. We will confirm the exact amount for each local authority next week.
This additional fund is aimed at small businesses with ongoing fixed property-related costs. We are asking local authorities to prioritise businesses in shared spaces, regular market traders, small charity properties that would meet the criteria for Small Business Rates Relief, and bed and breakfasts that pay council tax rather than business rates. But local authorities may choose to make payments to other businesses based on local economic need. The allocation of funding will be at the discretion of local authorities.
Businesses must be small, under 50 employees, and they must also be able to demonstrate that they have seen a significant drop of income due to Coronavirus restriction measures.
There will be three levels of grant payments. The maximum will be £25,000. There will also be grants of £10,000. Local authorities will have discretion to make payments of any amount under £10,000. It will be for councils to adapt this approach to local circumstances.
Further guidance for local authorities will be set out shortly.
As of 27 April, over £7.5 billion has been paid out to over
614,000 business properties via the SBGF and RHLGF schemes. This is over 61% of
the grant funding allocated to local authorities.
The announcement on Monday that a further extension to the funding available to SMEs would become available with effect from next Monday 4 May is extremely welcome.
Loans of up to £50,000 will become available and will be backed 100% by the Government unlike the CBILS loan scheme which is backed by Government up to 80% but which many companies have not been able to access.
On the face of it, these loans will be easy to access and will come on stream from next Monday. However, it may not be the Panacea that everybody is hoping for. If your company is deemed to be “an undertaking in difficulty”, you will not be eligible. Any undertaking less than three years old is not “an undertaking in difficulty” but any business that is older and that has negative reserves, even if it has been trading profitably and in the most recent times, will not be eligible.
Part of the problem is that companies in the United Kingdom have very low share capital but are often backed with monies put in by the owner managers. We are looking to see if there is any way that loans from shareholders to companies can be taken into the definition of capital so as to make a lot more companies eligible for these loans but unfortunately, it appears that this new loan is subject to EU rules and therefore it may not be possible to get the terms and conditions altered.
We will continue to look at making representations to Government to ease the position for our clients.
If you are thinking about making an application for a “Bounce Back” loan, please see the text below. It is fairly hard to digest but basically if your reserves are negative, you are unlikely to qualify. If you want any help in interpreting this legislation, then please do not hesitate to call us. We do not however want clients to waste time applying for loans that they are not going to get!
“Please note that one exception is that any undertaking less than three years old is not considered to be an undertaking in difficulty.
What is an undertaking in difficulty?
Undertakings in difficulty as defined under the State Aid rules should not be supported, in accordance with Article 3.3(d) of the ERDF Regulation (EU) No 1301/2013.
The definition under State Aid rules that should be used when assessing whether an undertaking constitutes and undertaking in difficulty is set out in the General Block Exemption Regulation (GBER), No 651/2014 . Article 2 para 18:
“‘undertaking in difficulty’ means an undertaking in respect of which at least one of the following circumstances occurs:
(a) In the case of a limited liability company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments following due diligence by the selected financial intermediary), where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision, ‘limited liability company’ refers in particular to the types of company mentioned in Annex I of Directive 2013/34/EU (1) and ‘share capital’ includes, where relevant, any share premium.
(b) In the case of a company where at least some members have unlimited liability for the debt of the company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments following due diligence by the selected financial intermediary), where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses. For the purposes of this provision, ‘a company where at least some members have unlimited liability for the debt of the company ‘refers in particular to the types of company mentioned in Annex II of Directive 2013/34/EU.
(c) Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors.
(d) Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan
e) In the case of an undertaking that is not an SME, where, for the past two years:
1. the undertaking’s book debt to equity ratio has been greater than 7,5 and
2. the undertaking’s EBITDA interest coverage ratio has been below 1,0.’
N.B. All parts of the test must be applied (as appropriate) in order to determine whether an organisation is an undertaking in difficulty.”
The Martlet Partnership’s voice to Government in conjunction with our UK200 Group colleagues, we are making representations on your behalf as our clients to Government to help everybody through this difficult time. Please see below the letter that went to the Prime Minister last Friday. The same letter has also been sent to the Chancellor of the Exchequer and the Business Secretary.
You will be aware that Treasury is now looking at support for SMEs who pay themselves via dividend income. They tweeted as such themselves this morning.
We’re delighted that the Treasury is urgently looking at ways to
help business owners who pay themselves via dividend income, according to their
own Twitter account this morning where they say they are ‘looking at
proposals’.
At the moment these smaller businesses, often one-person limited
companies, feel as though they have been forgotten.
We have been in contact with the Treasury to share our research with
SMEs conducted in recent weeks and have suggested a practical solution that
would be in line with measures put in place for the employed and larger
businesses.
We suggest the government looks at extending the Self-Employment
Income Support Scheme (SEISS) to include salary and dividend income from
owner-managed companies, as well as self-employment income, but to exclude any
furlough grants received.
This measure would bring support for those affected in line with the
support being provided to unincorporated businesses and employees.
This would be fair and equitable, and in fact would improve on SEISS
by eliminating double counting where individuals have a mixture of employment
and self-employment.
Over the course of the past few
weeks, UK200 Group, of which we are members, has been conducting research
amongst small businesses across South East and the UK.
The results make for worrying
reading with more than 40% of SMEs closed as a result of the lockdown and more
than half of all SMEs businesses having furloughed staff.
There has been so much reported
in the press about the financial impact of the lockdown due to Coronavirus.
Whilst the government is doing much to support businesses and the economy, the
reality is that not all businesses or jobs will be saved. Rishi Sunak has
said this himself.
Our research really brings home the reality for
many businesses. We are sharing some of the comments SMEs made to us in
the research. So, in their own words, this is what it means to SMEs in
South East:
After nearly 2 weeks,
the bank has not called me back and even though I’ve gone back to them,
the response is they have my details but they are exceptionally busy and
will get back to me ASAP.
We have contacted our
bank for a loan (in March) but they have been too busy to get back to us.
We know that some farm
machinery dealers in other parts of the country have already been awarded
Local authority grants as we retail machinery and parts, but we cannot get
any answers from West Berkshire Council currently.
We did not get the
interruption loan as Lloyds said we had too much security available so got
a commercial loan – not what we wanted!!
I was employed until
June 19 but am now self-employed so I not eligible for either the support
schemes for the self-employed or the furlough scheme as an employee.
As a small company only
founded 3yrs ago, we will be hit hard in the months to come. We provide
legal services on a consultancy basis, but as most law firms have had to
dramatically reduce operation and in many cases furlough/make
redundancies, our work has rapidly dried up. Our profits were due to fall
in any event and are unpredictable as best. We are suffering simply due to
the fact we have worked exceptionally hard & had two good years
profit. It seems unjust that we receive little to no support, and in the
medium to long term, it makes little sense for the economy for a small
business such as ours to face closure.
l run a B&B but
because l pay council tax and not business rates l am not entitled to the
grant.
I am an owner/director
with my wage topped up by dividends. Thus, no help from the government.
We are a registered dog
homing charity. We have had to suspend rehoming as it involves
non-essential travel. Our charity shop has closed, and we are unable to
continue our fundraising. We are surviving because our trustees are
funding the shortfall, but this cannot continue for more than a few
months. We have to pay remaining staff at the kennels, animal food and
kennel maintenance, services etc. Also, vet fees of £10,000 a month.
The Government has come
up with some good ideas, but the detail is useless. Small firms are being
penalised with no support available often as a result of a technicality.
Home based businesses who pay domestic rates or small companies who rent
premises do not meet the needs of the small business grant mismanaged by
Councils.
Commenting on the survey and the specific examples
from SMEs, a fellow member of UK200 Group said; “Hearing how some businesses
are being affected is heart-breaking. Many of the SMEs we are talking to
feel they have been forgotten. 31% of them are predicting their business
will fail if the lockdown continues beyond the end of June. As yet we
don’t know the likely impact of any ongoing measures once the lockdown is
‘eased’ but this will have a significant and long-lasting impact in the South
East.
We have written to the Prime Minister, the
Chancellor, Tim Loughton, MP for East Worthing and Shoreham and Sir Peter
Bottomley, MP for Worthing West to ask them to prioritise support to Stay
Focused; Protect the Economy and Save Jobs. We are committed to doing
our bit to support our clients and all SMEs by raising issues with the
government on their behalf and by collaborating with the government and others
to achieve these goals.
The
responses to this survey confirm the widely held view that SMEs have been
dramatically impacted by the effect of the pandemic. A total of 1,793
respondents, 42% report that they have closed their business as a result of the
lockdown. A full 88% of respondents have had to scale down operations or close.
52%
of respondents have furloughed some or all of their employees. Only the smallest
businesses have had to make their staff redundant, with 2% of respondents
having done so. Recruitment is frozen across the board. There is stratification
between businesses of different sizes here; the larger businesses are making
much more use of the furlough scheme than the smaller businesses (comparing
businesses of 5-50+ people to those of 2-5 people).
The
outlook shared by respondents in bleak. If the lockdown extends to 30 June, 73%
of respondents expect to scale down or close (17% expect to close permanently).
Again, we see that bigger businesses expect to be more resilient; 1 in 5 of
those with fewer than 10 people expect to close permanently. If the lockdown
goes beyond 30 June, a full 31% expect to close permanently, while bigger
businesses again appear to feel most resilient as a smaller (but significant)
24% of businesses of >10 people expect to close permanently.
Despite
this outlook, 71% of respondents have not approached the banks for support.
Why? We can only speculate in terms of this survey. Is there no confidence in
future performance to take on debt? Of the businesses who have approached the
banks, 66% have had problems or have been refused funding. Bigger businesses
see a greater proportion approaching the banks, with 56% of >50 people
businesses having done so (vs 29% overall). There is a different experience
felt by different business sizes; of applicants to the banks, 71% of applicants
of 2-10 people have experienced difficulty, vs a smaller 44% of >50 people
applicants.
The respondents are almost united in the impact they have felt from the lockdown, and their pessimistic outlook for the coming months and beyond. The furlough scheme has certainly been accessed, while bank support is interestingly much less accessed. We see different experiences of business sizes throughout the responses.
Overview of dataset
A
total of 1,793 respondents submitted the survey.
Of
these, 68% (1,214) classified themselves as limited companies. Sole traders
accounted for 19%, Partnerships 10%, and the remainder “Other”. The responses
are most representative of limited companies.
60%
(1,073) of respondents are businesses with fewer than 5 people. By business
type, 91% of sole traders reported fewer than 5 people, while 52% of companies
report fewer than 5. Of companies, 41% (494) have between 5 and 50 people, with
7% (88) reporting >50 people. All business sizes are reasonably represented.
92%
(1,758) of respondents are based in England, which follows for each entity
type. 35% of all respondents are from London and the South East, with a further
28% from the north of England. Wales returned 111 respondents, Northern Ireland
15, Scotland 10.
Business performance
92%
(1,648) of respondents reported that business was as expected or better prior
to lockdown. Within the regions this is born out.
40% (724) report this time of year as busy as the rest of the year, with a further 53% (957) reporting it as their very busy period. This is reflected across all business types and regions.
Lockdown impact
A full 42% (746) of
respondents have closed their business as a result. [22%
due to government instruction, 20% due to business falling to nothing]. 38% of
limited companies (467) report closure, vs 53% of sole traders (178).
47%
(833) of respondents are running but with reduced trade volumes, therefore a full 88% of respondents have been
negatively impacted by the lockdown (12% carry on as normal or better).
There
is a stratification between business sizes. Larger entities (>50 people)
have fared better but still we see 29% (33) of this group reporting that they
have closed. A larger 20% of this group (22) report business being the same or
better (vs 12% of the full dataset).
Regionally,
London and SE fares best with 36% (229) reporting closure vs the population’s
42%. Overall, negatively impacted businesses in London and the SE is the same
as the population, at 88%.
Wales
appears to be the worst hit region, with 52% (58) reporting closure. Scotland
reports the same, but the sample size is too small to be reported.
Employees
52%
of respondents (924) have furloughed some or all of their employees. This rises
to 60% (734) of limited companies. Only
2% of businesses (33) have made their staff redundant, and these have been the
smallest businesses (31 of them fewer than 5 people). Does this indicate
the furlough scheme is being used for its intended purpose?
6
businesses in total report having taken on more staff. Recruitment is frozen.
Across
business sizes, there is stratification. Of the smallest (2-5 people), 48%
(292) have furloughed some or all, but of businesses with 5-50 people, 82%
(207) have furloughed some or all employees.
In the >50 people group, this rises to 90% (101). The biggest businesses are the ones most likely to have made use of the furlough scheme.
Table 1 – What
have you done about your staff? [By number of people]
Continued lockdown to 30 June
If
the lockdown continues to 30 June, 17% (312) of businesses expect to close
permanently, a further 19% expect to close temporarily (346), and 36% (649)
expect not to close but to scale down their operations further. In total
therefore, 73% expect to scale down or
close (1,307).
For
all businesses with >10 people, a lower proportion of 12% (55) expect to
close permanently but a larger 50% (232) expect not to close but to scale down
operations.
For respondents with businesses of <10 people, 1 in 5 (257) expect to close permanently.
Continued lockdown beyond 30 June
The
view becomes more pessimistic as 31% of all respondents (558) expect to close
permanently. 82% in total expect to scale down or close (1,465).
For
all businesses with >10 people, now 24% (110) expect to close permanently.
More bigger businesses expect to ride out the storm without closure.
No regional findings to note in either of these cases.
Emerging from lockdown
58%
(1,036) of respondents expect a slow start that is hard to predict, while a
further 27% (488) agree that the restart will be slow, but that normality will
return. Therefore 85% of respondents (1,524) expect slow beginnings. The
largest businesses (>50 people) are more bullish where 40% (45) expect a
slow start but a return to normality.
29%
(522) are concerned their business will not survive the effect of the crisis,
while a further 53% (950) expect to survive but “this year is a write off”.
This generally follows for business sizes, but those with >50 people feel most resilient. Only 13% (14) are concerned they won’t survive and 1 in 5 (22) in this group expect the year to turn out as normal, vs 16% for all our business sizes (264).
Support from the banks
Interestingly, despite the pessimistic outlook presented
above, 71% of respondents (1,273) have
not approached the banks for support. This raises further questions. Is
this due to confidence in liquidity, despite the concerns for longevity
presented? Is it an indicator that businesses are reluctant to take on debt
with no confidence in future profitability (“this year is a write off”)? These
can’t be answered here.
Of
the remaining 28% [NB, rounding] who have approached the banks for funding, 1
in 5 (100) have found them to be very helpful and a further 14% (70) have
received the funding they need. 66% (323)
of those who have approached the banks, have had problems or have been refused
funding.
Of
businesses with 10-50 people, 41% (142) have approached the banks while 56% of
the >50 people businesses (63) have done so. Bigger businesses appear to be
more comfortable/savvy/have felt the need to approach the banks.
In
the >50 people group of those who approach the banks, only 44% (28) of
applicants have had trouble getting the funding they need. Conversely, of
businesses of 2-10 people who have approached the banks, 71% (156) have
experienced trouble.
As perhaps expected, the biggest businesses appear to be finding it the easiest to get access to lending.
About the survey and the data
The
survey was undertaken by the UK200Group the UK’s leading membership association
of independent, quality assured chartered accountancy and law firms. We are one
of the member firms.
Responses were captured in the first 3 weeks of
April 2020. 1,793 SME businesses from across the UK participated in the survey.
SMEs
are the backbone of our economy. They account for 16.7 million of our
workforce. They are vital to the wellbeing of our country and
communities.
That’s
why we recently conducted research amongst the SME community. 1,793
participated and the results of the survey [link] are now being used by us to
call on government for more support for SMEs.
We
wrote to Boris Johnson and Rishi Sunak just last week calling for additional
support for SMEs and we are delighted to see that a 100% government backed loan
has now been introduced.
But
we also know this is not enough in itself. More support and more measures
are needed; we know that many businesses need to see an end to the lockdown but
are worried about the impact on any ongoing social distancing measures.
That’s
why we will keep lobbying the government on behalf of SMEs. Please do
keep telling us what you need so in turn we can do our bit to help you.
In
the past few weeks we’ve been calling on the government to provide further
support for SMEs. We’re delighted that today the government has announced
a 100% government backed loan facility for SMEs to borrow up to £50,000.
Our view on the new scheme is that this is just the type of funding that is required and complements the main CBILS scheme very well. The simplified application should help to streamline the application process and the ability to defer capital repayments for 12 months provides business owners the time to re-structure their business and the confidence to accept the loan. Where the decision for Banks lending to a business was marginal, delays and rejections were likely, but this scheme will be a game changer for some businesses.
The impact from the Coronavirus has been far-reaching and over the past few weeks has changed the way we live for the past few weeks, no matter where you are in the world. In the UK, the last few weeks have most definitely been a challenge for most, if not all, businesses.
The Chancellor has been keen to point out that he is doing everything he can to limit the number of business failures during this period of uncertainty. From providing the opportunity for businesses to furlough workers and receive a grant for their wages from the Government to agreeing deferrals, payment holidays, and providing cash for loans and grants. It does feel like there has been an attempt to support businesses, all for a period of at least three months. At the same time, the Chancellor has told us that there will be dark days ahead.
Starting Back Up Again
The Government are keen to start the economy moving again although the lockdown is set to continue until at least 7 May 2020. Most businesses have focused on their immediate cash requirements over the last few weeks, using short term cash flow forecasts to understand the actual cash coming in and what is going out. Using these forecasts as a base, businesses should now be starting to look at what the next few months will look like. We look at some actions that you can take below:
1. Speak to Your Existing Customer Base
Speaking to your customers will help you to understand what their challenges are, what their immediate/short-term needs look like and will help you to assess their ability to pay you going forwards. There may need to be some adjustments to orders received based on how they envisage demand after the lockdown comes to an end.
2. Turning Work in Progress into Cash
Whether you are a professional services firm or a manufacturing business, reviewing your work in progress will help you to understand whether you have the ability to complete any of your existing work in progress without the need for additional purchases or input. Concentrating some of your initial efforts on turning work in progress into cash will assist you with your working capital cycle.
3. Identify What Additional Purchases You Need
Carrying out a review of your work in progress will also help you identify what purchases you need to make in order to complete your existing orders. Where you have outstanding payments to suppliers, talking to them about the orders that you have received and cashflow will help you to work with your suppliers to get moving again.
4. Book Your Haulage in Advance
If you use an outsourced logistics or distribution operation, make sure that you have booked your haulage in advance so that any delays in getting finished products out to your customers are minimised.
5. Reviewing Your Supply Chain
This is a good opportunity to speak to suppliers and understand what their challenges are. Building relationships with your suppliers will go a good way to helping you to move forward – if you have communicated with them with regards to your challenges, the chances are they will be more amenable to being flexible on payment terms in the short term.
6. Consider What the Return to Work Looks Like for Your Employees
Where you have furloughed staff, take some time to think about whether a return to work needs to be phased or shift patterns need to be changed if social distancing rules are set to continue. Where working patterns need to be changed, make sure you seek advice from your employment advisors.
Looking Further Ahead
The position now may seem
relatively stable, but the VAT, tax and loan payments which have been deferred
will all need to be paid back at some point. Making sure you have enough cash in
the future months to meet these obligations will be vital if your business is
to exit this period relatively unscathed. Cash will be tight whilst the working
capital cycle builds up again and there is likely to be some flex needed with
payment terms. Starting to prepare a longer-term cashflow forecast will help
you to understand what additional funding requirements you may need, and in
what form.
Many businesses are likely to need some additional help as they start back up
again. Even businesses which have been going for many years will likely need to
treat their business as a start-up for the next few months. Taking action now
will ensure that the dark days ahead will end sooner rather than later. If you
are concerned about what the future holds for your business or need some advice
about what steps you should be taking next, please get in touch with our team
who will be able to help you.
