Coronavirus – Practical Business Advice – Part IIIApr. 1, 2020, 2:51pm
As we talk to clients, the disruption (an understatement!) from last week’s lockdown is perhaps starting to settle. Instead, we are moving in to the business protection phase and a new working regime comes into focus.
Ongoing key points to note:
- Revenues – Focus on revenue streams and assume a ‘worst case’ outlook i.e. the lockdown extending throughout Q2 2020 (April – June 2020) with a release being restricted and slow into Q3? Then it takes off?
- Cashflow – Protection of cashflow is fundamental; 6 month capital repayment holidays are being agreed by the banks. Cut costs deep and hard to match expected revenues. Using the Job Retention Scheme (see below) and furloughing workers is a useful tool.
- Access Government support – see more on this below.
We have prepared an updated overall summary of the Government support for business, please follow the link.
Council Rates and Grants
Anecdotally, we are hearing that Councils are processing grant applications quickly, although we have yet to hear of a client confirming they are in receipt of funds.
Coronavirus Job Retention Scheme
Further clarification and guidance has now been published in relation to the scheme:
- An UK entity can be eligible for the scheme provided they had employees in a PAYE scheme at 28 February 2020.
- Eligible employment contracts include full and part time employees, employees on agency contracts and employees on flexible or zero-hour contracts.
- For each employee placed on furlough the monthly grant available is the lower of 80% of the employee’s regular wage, or £2,500 per month. In addition, HMRC will pay to cover employers National Insurance Contributions and minimum employer pension costs (based on auto enrolment). The maximum grant is expected to be around £2,800 per month.
- The Chancellor has stated that he hopes the first grants will be paid by the end of April 2020. The scheme is initially intended to run for three months but may be extended. The portal through which claims will be made is currently being developed. We do not expect the portal to be available for several more weeks.
Coronavirus Business Interruption Scheme (CBILS)
Have you seen many e-mails from banks outlining how the scheme will be implemented?The procedure for applications is based upon Government and Bank of England guidance.
Key practical points to note in connection with CBILS:
- The decision as to whether to advance a loan under CBILS rests with the bank. A bank will not loan to a business:
- that is not viable;
- where the purpose of the loan is to remove or restructire existing loans;
- where the proposed debt is not serviceable or is not repayable over a reasonable timescale (maximum 6 years).
- We understand that certain KPI tests are being applied to CBILS loan applications with reference to Turnover and Wages costs.
- As part of credit approval procedures, banks will require key financial information as follows:
- Up to the last 3 years Financial Statements
- Updated management information to idally include the latest Management Accounts including Profit and Loss Account and Balance Sheet.
- Financial projections for a minimum period of 12 months to again include projected Profit and Loss Account, Balance Sheet and Cashflow analysis.
- The bank may also require security potentially taking the form of debentures or guarantees, which may inclue personal guarantees from the Directors.
- Lastly, the banks are very busy at the moment. If you are contemplating making a CBILS application, it is important to make the decision easy for the bank, ensuring all relevant information is available. Without this, you may find your loan application is delayed or withheld.
It is important to present the financial information in a way which is both complete, but also conveys succinctly how the business will survive and ultimately trade out of the ‘recession’ whilst ensuring sufficient cash flow to be able to do so.
Again, this is a further brief update combining key points arising from numerous calls and e-mail exchanges over the last week or so. It is not intended to be an exhaustive or definitive list, but hopefully proves helpful to you in these challenging times.