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What next for businesses when Government schemes end?

The end may be in sight for some of the Government schemes put in place to support businesses in the wake of the Coronavirus pandemic. In this article, Craig Blackmore of Verde Corporate Finance looks at how companies need to anticipate the ‘stabilisers coming off’.

Craig Blackmore

The UK Government has largely been applauded for their recent help for UK businesses, with the Coronavirus Business Interruption Loans (CBILs) and the Job Retention Scheme (JRS) probably the most widely appreciated. With both schemes announced pretty much immediately after the lockdown restrictions were imposed, and actioned shortly afterwards, they have been lifelines to many.

As of the 31st May, £8.92bn has been deployed under CBILS helping around 46,000 UK businesses. At the last count, the Office for National Statistics said that 76% of UK companies had applied for JRS.  No wonder both schemes are so popular!  The biggest burden to the Treasury has to be JRS which Rishi Sunak says is costing £8billion per month – it was inevitable then that the tapering off of JRS announced over the last few days was on its way.  

From August employers will be required to contribute to the cost of furloughed workers by having to meet the employers’ national insurance and pension contributions.  Added to this, further tapering off of JRS support in September and October will slice 10% off the Government’s contribution to salary costs in each month.  Then in November, we are back to business as usual!

A recent Institute of Directors survey said that of almost 700 UK company directors surveyed, only half of those using JRS said they could provide 20% or above toward furloughed workers’ full-time salaries between August and October. A quarter said they could not afford any amount.

These are really worrying statistics.  And timelines to these measures being implemented against the timeline of lockdown measures being eased and any subsequent upturn in trading are far too close for comfort.  In fact, they just don’t give enough time for cash cycles to replenish cash reserves for many businesses to survive. 

Businesses have to look at their financial structuring and models right now; the risk of not doing so is clear – survival may not be possible.  Financial models, something I live and breathe every day, are being torn up.  The savvy business person wants me to test the forecasts, draft multiple versions and scenarios and start to plan to avoid for falling off the Covid cliff edge.

Did I say, JRS ends in October (yep, you are on your own from November 1st) – but is CBILs the saving grace for many to provide the funding to plug the gap?  Well, think fast then, as CBILs ends on 22nd September – over a month prior to the end of JRS.  Working backwards from say a typical 6 week CBIL application process brings you back to early August at the very latest to start your application.  And that is if banks don’t see the same sort of last minute avalanche of applications as the tidal wave they saw at the start.

With business leaders transitioning their businesses to the new normal and driving hard to make up for lost time, resources to meet these deadlines will be stretched to say the least.

We are urging our clients to act now as timing is becoming tighter and perhaps lending attitudes will tighten too as time goes on.  Inevitably, decision making can be longer than expected too – so allow for that. 

Whilst, unlike JRS, CBILs need to be paid back, the valuable capital and interest payment holidays will provide a grace period.  Added bonuses of low interest rates, no arrangement fees and 80% Government guarantees are also included.  It is an attractive package and something not to be ignored – maybe even something not to be missed?

Take heed though, a CBIL application still needs to stack up and quality information will still be needed by the lender. Make sure you get those forecasts right and scenario planning, stress testing and assumption bases really need to be clearly presented and thought through.  Don’t cut any corners as you may not get another chance. 

So, whilst the lockdown measures are easing and the curtains are starting to be drawn on the window of support, UK businesses need to make sure they are thinking about accessing the funding they need pretty soon or else it could be curtains for them too.