Looking externally: Navigating COVID-19 (part 3 of 4)

Sailing choppy waters

The Government has worked exceptionally hard to provide an unprecedented level of support to businesses impacted by COVID-19. Industry experts are sharing their views and ideas and businesses are helping businesses as everyone bands together to navigate COVID-19. In part 3 of our 4-part series, we provide an overview of some of the external assistance available to SMEs, and the pros and cons that should be considered with these lines of support.

In parts 1 and 2, we looked internally at business procedures, reviewing finances and working with lenders. But there is also a wide variety of external support available that should be utilised. August Equity have an appointed COVID-19 sub-committee who took on the task of distilling this information for our executive teams.

For further information on the Government-led initiatives detailed below, please see the official Government guidance website here.

Part three – Utilising external help and support

Funding focussed initiatives

To date, the Government has released three initiatives to provide additional funding to businesses severely impacted by COVID-19. The COVID-19 Corporate Financing Facility (“CCFF”), the Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) and the Coronavirus Business Interruption Loan Scheme (“CBILS”).

The CCFF is a paper-based loan scheme available for investment grade businesses, whilst the CLBILS and CBILS are Government-back bank loan facilities for businesses with revenue above and below £45m respectively. CBILS is the relevant scheme for the majority of our portfolio businesses and therefore we have focussed on this, although CLBILS works in a very similar way.


Who is eligible?

  • SMEs with an annual turnover of less than £45m;
  • UK-based businesses with operations across any sector;
  • Businesses with any ownership structure (e.g. founder owned, private equity backed); and
  • In all cases, the business must have self-identified that it has been adversely impacted by COVID-19

What is it?

CBILS is a Government initiative to enable businesses in the UK to access bank debt quickly to cover their cash needs. Under the scheme, lenders can provide up to £5.0m per business, and the Government (backed by the Government-owned British Business Bank) has promised to guarantee 80% of loans issued under the scheme. This means that banks only take a risk on 20% of the lend. In addition, the Government will fund the first 12 months of interest payments and any associated bank fees.

There are 40 accredited lenders that can issue loans under this scheme (including all major banks), and loans can take various forms, including term loans, asset backed lends or RCF facilities.

Recent amendments:

As at 3 April, 130,000 enquiries had been made and £90 million approved for 983 businesses. Following frustration from borrowers that the scheme isn’t agile enough, changes to CBILS were announced on 3 April  and went live on 6 April. These changes are designed to make CBILS loans easier and quicker to access. For example, borrowers no longer need to show that they cannot get credit on normal commercial terms in the first instance, but must self-certify that they have been adversely affected by the impact of COVID-19 to be eligible for a loan. Personal guarantees have been removed entirely for loans under £250k. Personal guarantees on larger loans can only be against 20% of the loan and personal guarantees do not include personal homes.

It is important to consider how much money is required and for how long and what other levers can be pulled before drawing down additional borrowings.

Pros: For eligible businesses, this provides a vital cash lifeline under very supportive terms. CBILS provides an opportunity to obtain financial assistance when all other doors may be closed. The Government is aware and responsive to perceived shortfalls, as shown through the changes announced on 3 April. Also with Chancellor, Rishi Sunak, expected to meet bank Chief Executives during the week commencing 6 April to discuss how the schemes are performing.

Cons: Significant difficulties to get in front of banks due to the influx they are facing. Only 1% of enquiries have so far led to successful CBILS approval. The complexity of the eligibility criteria and confusion caused by a lack of process standardisation is leading to mixed messages, with some banks reportedly not lending, and others refusing loans to companies with cash reserves. The cons are expected to reduce off the back of recent changes and as updates are announced and implemented.

Employment focussed initiatives

The Government has introduced a new scheme called the Job Retention Scheme (“JRS”) to support businesses impacted by COVID-19 and help prevent redundancies from taking place to protect employment in the UK.

The scheme enables businesses to furlough employees for a period of time if their employment is not required due to the impact of COVID-19. This means the relevant employee(s) cannot work for the business during this time, and the Government will cover the cost of 80% of their wage(s) (up to a total of £2,500 per employee per month, plus employers’ NICs and PAYE on top of this). Employers can choose to top up the payment to employees if they wish to, but are not required to do so.

This generous but necessary form of Government support has generated the most questions and uncertainty. The Government has been proactive in providing updates and revisions to answer questions where possible, although there are still further clarifications required in some areas.

Who is eligible:

  • All UK businesses across all sectors self-identifying as severely affected by COVID-19;
  • All employees of all businesses in the UK (including migrant workers from non-EU countries) that were on the payroll as at 28 February 2020;
  • Employees that were made redundant after 28 February can be re-employed and then furloughed;
  • The scheme only applies to employees working their full contracted hours and cannot be used for employees working reduced hours.

HMRC will audit this scheme retrospectively and will likely focus on which employees were put forward for furlough and how this was justified. It is crucial that businesses retain full and clear records of the process followed to determine which employees were furloughed and at what salary level.

In most cases there will need to be a temporary change to an employee’s employment contract in order to enable them to be furloughed. This must be done with their agreement, or employers remain subject to employment law and anti-discrimination legislation when furloughing employees. Employers can ask employees to volunteer for furlough if appropriate or simply allocate employees to be furloughed. In all instances, businesses should ensure written agreement is sought from employees before they are furloughed in order to minimise any risk of employment claims. Where the alternative to furlough is redundancy, it is likely that agreement will be reached quickly in the majority of cases.

What is the process:

An online portal is expected to be open from the end of April and businesses will submit claims for furlough payments via this portal. Businesses must calculate the amount that they are claiming themselves. Further guidance on calculating salaries can be found here.

Claims will need to be congregated into one and submitted once every three weeks. The Government will then reimburse businesses with the costs of 80% (plus NICs and PAYE) of their furloughed employees wages. It is important to note that businesses must continue to pay their furloughed employees via payroll, and they will then claim the money back from the Government retrospectively.

Employees must be furloughed for a minimum of three weeks. Employees can be re-furloughed after coming back to work for any period of time (for example if using a rota system for two groups of employees), but each furlough period must be for at least three weeks. Companies will retain the right to make furloughed staff redundant after the furlough period.

Shielded employees:

Employees that are shielded can still be placed on furlough if deemed appropriate, but there is no obligation to do so. Employees on Statutory Sick Pay (“SSP”) can be furloughed once they come off SSP.

The key principle to bear in mind when considering furloughing staff is to document all decisions early and evidence them in any furloughing situations as the HMRC will have the power to retrospectively audit this in the future.

Pros: Provides a favourable alternative to redundancy and lay-offs allowing business to retain experienced and loyal employees. Provides some flex to most SMEs largest cost base.

Cons: Portal not ready until at least the end of April and will likely experience an element of problematic teething issues. There is still a lack of clarity around some areas of the scheme, for example how it will apply to businesses receiving public funding, and how holiday entitlements will work.

Non-Government help

Legal firms, accounting firms and advisers up and down the country are providing consistent and helpful COVID-related advice via their websites, webinars, informal digital round tables and more. A list of advisers whose information we have utilised to date is provided below:

We have also had fantastic reports of businesses working together to provide support. In particular, we have witnessed local nurseries banding together to support the children of Key Workers by amalgamating into at one location, sharing and therefore reducing costs. In some cases, this has made the difference between remaining open to support the children of Key Workers and being forced to close.

Our technology company, Air IT, has been offering free webinars and informal digital roundtables on the technological aspect of working from home, and important ancillary areas to consider such as cyber security. Businesses have utilised these sessions to assist remote working strategies and maintain connectivity throughout this period.

We are hearing a great number of positive stories of businesses and individuals pulling together and thinking outside the box during this difficult period to do everything they can for their businesses, for each other and for the NHS.

Up next: Part 4 – Expect the unexpected

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