Lee Humble shares his comments on developments this week

Our Associate Partner Lee Humble shares his thoughts on developments this week including business financial support and his experience with the Coronavirus Business Interruption Scheme.

The UK is now in a locked down state with movements now minimised of non-critical labour, supplies and goods/services.

For those not recognised as ‘Key Workers’ this is therefore causing unprecedented uncertainty, confusion and fear. As the UK Government has rolled out their stimulus and support plan, I have seen an avalanche of customer enquiries who are asking what this means to them and their businesses.

Only with the passage of time have we been able to begin to understand how these initiatives will work and how they will be implemented.  The Government have an unenviable task of identifying how best to balance the economy and avoid mass casualties (on a business level) which would have been inevitable without such a vast support proposal.

As the hours and days have passed we have seen the finer details announced and further guidance become available through government sources, as well as their agents who are managing some of the schemes. Current consensus appears that a lot of the measures are being well received, albeit it must be recognised that we do not have full blanket coverage and certain quarters remain exposed, with the self-employed being a key quota who are concerned about the very recent guidance about their support packages.

I expect further guidance to follow and my recommendation is to keep your eyes on the daily updates being provided by the UK government, as well as watching out for local coverage which is emanating from key advisers.

VAT deferrals will be automatically being applied by HMRC (although you must look at what direct debits are in place and take action) and further support is available through Time to Pay arrangements which can be sought. Grants for eligible businesses have also been delegated to local authorities and we have seen some movement in by individual councils with their own communication programme to notify qualifying businesses.

The Job Protection Scheme is a significant area which lacks a definitive ‘rule book’ and the grey areas are posing concern as businesses grow desperate to understand what can and cannot be done, and what should and should not be done. Again, gaps exist, with new employees commencing employment after March 1st not qualifying for furlough and business owners being left with very difficult decisions to make as to how they can engage, manage and obtain any productivity from candidates who may not be fully operational.

The Coronavirus Business Interruption Loan Scheme has been rolled out across the week and we have seen eligibility criteria published which will allow business owners to identify whether they qualify. My experience with this scheme suggest that the scheme rules, and application by the members banks, is extremely fluid and confusion is being seen across the funding community.  My observations and comments on this are as follows:

  • The funding is being distributed through a panel of over 40 lenders, and applicant experience of the scheme is differing across the lender base.  The scheme rules are becoming clearer with every day and new funders are applying to the BBB to join the scheme which will assist greatly.
  • The scheme is intended as a top up of existing facilities and includes term loans and working capital facilities.
  • Key to application appraisal is that the applicant must be able to demonstrate
    • That they are a viable business who can repay any requested finance, ie these monies are not grants; and
    • That their funder cannot support an increase in these facilities without the government guarantee to support the request
  • Funders are looking at which other measures you have utilised and intend to implement, which may include schemes related to VAT deferral and Job Protection via employee furlough. It is essential that you support your request with detailed and robust finance modelling that assess the impact of COVID19 outbreak and give you a best-informed assessment of any cashflow gap which exists in the short term.
  • As part of the above conditions it is essential that the applicant assesses their current indebtedness to confirm what capacity they have. CBILS is intended as a backstop facility and hence I am seeing a lot of applicants being told that conventional lending channels should be pursued first.
  • For those seeking finance from traditional sources it is clear that lending appetite is evolving very quickly, with some lenders closing their doors and others reducing their exposure through changes to their policies.  Property based lending in particular is seeing the traditional loan to value metric change to include a loan to value in a restricted timescale or vacant possession basis, ultimately reducing the total quantum of finance that can be provided. Serviceability remains the biggest hurdle and again I am seeing funders take a closer look at financial results and forecasts which factor in a deep contraction in Revenue.
  • Asset based lenders are largely suggesting they remain open but some have withdrawn offers and invoice discounting clients must keep a very watchful eye on covenants which include recourse periods.
  • Peer to peer lenders and Fintech businesses are feeling the pain as their platforms struggle to manage payment holiday requests and default triggers are occurring.
  • The mainstream funders are looking to adjust existing facilities ahead of the approval of new facility requests : with short term facility increases and payment holidays the default path.
  • For those viable businesses (viability deemed at the point prior to lock down) who can apply for finance via the CBILS I am seeing a great deal of concern with regards to guarantee requirements from key directors.  We have seen some funders confirm that they will not seek guarantees for requests up to defined thresholds (with £250,000 repeatedly referred to), albeit again this remains unclear and will be determined by the asset pools available and current security assignments.  This is therefore causing increasing problems for those with multiple financial stakeholders.

To conclude, the week has seen a major roll out of several state aid schemes which have all been expanded as the week has progressed. Full guidance remains outstanding in certain quarters and only with the passage of further time will we see the true viability of the schemes.

Time is the problem. The uncertainty of the timing of the lock down makes it extremely difficult for business owners to plan their cashflow and understand their true requirements. The timing of aid payment is another huge problem, with employee furlough and self employed payment timing likely to be several weeks away.

My guidance is to look at your true underlying cash position, speak to your advisers and devise a plan which you communicate and monitor.  Having the ability to pivot in a timely manner is the key means to survive right now, and we must never forget the health implications of this deadly virus as well as the major mental health aspects of isolated working which are compounded by the ongoing uncertainty.

Lee Humble
Associate Partner
E: lee.humble@taitwalker.co.uk

Disclaimer – This information is accurate at the date of publication