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Consideration for commercial agreements coronavirus

We recently circulated a blog that aimed to summarise the various key business support options, that the Government was putting into place to support businesses through the coronavirus lockdown period and beyond.  This then is both an update on those initiatives and a brief commentary on their implementation.

Now in the eighth week of lockdown, the first wave of funding measures have been implemented:

  1. Coronavirus Business Interruption Loan Scheme (CBILS)
  2. COVID 19 Corporate Financing Facility (CCFF)
  3. Business Rates Support
  4. Grants for Retail, Hospitality and Leisure sectors
  5. Statutory Sick Pay (SSP) Support
  6. VAT Deferment
  7. Time to Pay Services

These have been expanded by way of:

A “Bounce Back” Loan Scheme for small businesses announced by the Chancellor on 27th April as a response to the criticism that the country’s smallest businesses that are so key to our economy had been overlooked. The scheme is to provide loans of up to £50k via accredited lenders (namely banks and other institutions just as with CBILS), which are interest free for 12 months.

The application process is designed to be simple; involving merely a two page form – one of the criticisms of CBILS being that the application process was altogether too involved and cumbersome – with the Government guaranteeing 100% of the loan.

As with the other schemes, it is important for businesses to realise that this guarantee is to the lender and not to them. They remain fully liable for their debt but the fact that it is now a 100% guarantee, not merely 80%, is designed to make it easier for lenders to say “yes”.

The Future Fund is specifically for businesses in the tech and R&D sectors which is stated to be made available to provide co-investments, loans and grants totalling £1.25bn. Whilst its application is not widespread, in many ways we think this may be an interesting development because it anticipates “convertible loans” and the government taking a share of the company’s equity in return for finance, rather than simply debt which will carry with it their position of repayment. This will be interesting to see if this more expansive approach permeates into the other areas of business support. This was launched on Wednesday 20th May 2020 to provide funding between £125k to £5m.

Start-up Loan Schemes are targeted at smaller early stage businesses, requiring lower borrowings. This is a Government-backed personal loan available to individuals looking to start or grow a business in the UK. Successful applicants also receive 12-months of free mentoring and business offers. It’s the equivalent of seed capital with unsecured loans of up to £25,000

Closer to home on Merseyside has a total £135m which has been made available to Liverpool City Council from central Government the for allocation between small businesses and particularly in the hard hit retail, hospitality and leisure sectors.  Liverpool City Council also announced that it has its own business grant support scheme and grant application portal to provide access to these funds. Via the Liverpool City Region Metro Mayor there is to be a further £15m of grant funding available from more redirected from existing combined authority projects.

In practice it seems, as is our real world experience from clients and contacts, that up to now take up of the funding support initiatives has been limited. It would seem because of a reluctance to take on debt coupled with the detail of the application process.  This would seem to be supported by figures showing that to date only 25,262 CBILS loans totalling £4.1bn have been distributed, estimated to be less than 50% of the businesses that have applied.

It is interesting to see this figure compared to France which has made loans of over £35bn under its broadly equivalent scheme.  Well in excess of the UK figure, though arguably their economy has additional issues to deal with.

Instead the key tool for businesses going looking to mitigate the impact on their activity and turnover seems to be the Coronavirus Job Retention Scheme (CJRS) and the furloughing of employees as they seek to reduce costs.  The CJRS portal went live on 20th of April and dealt with £1.5 billion of claims on that day alone.

Early evidence seems to be that the process behind the scheme is working as intended with employers receiving payment within 6 days of them making a claim.

Difficult issues for the self-employed and SME business owners whose remuneration has been via regular dividends continue to exist and it remains to be seen if and what central government maybe introduced in attempt to address this.

The Government also proposes support measures particularly targeted at supporting the high street and retail businesses through a temporary ban on the issue of statutory demands and winding up petitions, in the first instance until 30th June, but perhaps to be extended for longer.

We can all hope that the analysis of Robert Gardner, Chief Economist at the Nationwide is accurate when he says:

“Economic activity is set to contract significantly in the near terms as a direct result of the necessary measures adopted to suppress the spread of the virus. But the raft of policies adopted to support the economy, including to protect businesses and jobs, to support peoples’ incomes and keep borrowing costs down, should set the stage for a rebound once the shock passes, and help limit long-term damage to the economy.”

 

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