Measures The Government Has Introduced To Support Businesses, Particularly Those In The Hospitality And Leisure Sector
Loans and guarantees
The government have pledged to provide unlimited loans and guarantees to support firms and help them manage cash flow. The Chancellor will make available an initial £330 billion of guarantees (equivalent to 15% of GDP).
- A major new scheme, COVID Corporate Financing Facility (“CCFF”), has been launched by HM Treasury and the Bank of England to help provide support for liquidity amongst larger firms and help them bridge COVID-19 disruption to cash flows through loans.
The CCFF provides funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy. The financing will be open to firms who can demonstrate that they were in sound financial health prior to COVID-19.
- The government is increasing the amount SME’s can borrow through the Coronavirus Business Interruption Loan Scheme (delivered by the British Business Bank) from £1.2 million to £5 million and for up to 6 years.
In order to support cash flow and allow smaller businesses to benefit from no upfront costs and lower initial repayments, the first 12 months of interest payments and any lender-levied fees will be paid by the government as a ‘Business Interruption Payment’.
The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) – the government will not charge business or banks for this guarantee. Businesses can access the first 6 months of that finance interest free, as the government will cover the first 6 months of interest payments.
- A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million.
- The scheme allows lenders to specifically support businesses that were viable before the COVID-19 outbreak but now face significant cash flow difficulties that would otherwise make their business unviable in the short term.
The government have also announced that they will have wide reaching legal powers in the COVID Bill, enabling them to offer whatever further financial support they think necessary to businesses.
The government have confirmed that their advice on 17 March 2020 to avoid pubs, clubs and theatres etc. is sufficient for businesses to claim on their insurance where they have appropriate business interruption cover for pandemics in place.
However, most businesses are unlikely to be covered as standard business interruption insurance policies are dependent on damage to property and will exclude pandemic.
The government have announced they will give all retail, hospitality and leisure businesses in England a 100% business rates holiday for the 2020-2021 tax year.
The Small Business Grant Fund (SBGF) will provide increased grants of £10,000 to eligible small businesses.
The Retail,Hospitality and Leisure Grant (RHLG) will provide further cash grants of up to £25,000 per property to retail, hospitality and leisure businesses with a rateable value of over £15,000 and below £51,000. Businesses in these sectors with a rateable value of under £15,000 will receive a grant of £10,000.
The government will support all UK businesses by deferring VAT payments for 3 months from 20 March 2020 until 30 June 2020. UK businesses do however have the option to pay the VAT due as normal.
How businesses access the measures
Loans and guarantees
Coronavirus Business Interruption Loan Scheme (CBILS)
The scheme is now open for applications. To apply, businesses need to talk to their bank or one of the 40 accredited finance providers (not the British Business Bank) listed here as soon as possible to discuss its business plan. All major banks are offering the scheme. Various products will be made available, including term facilities, overdrafts, invoice finance facilities and asset finance facilities.
To be eligible, the SME must:
- Be UK based, with a turnover of no more than £45 million per annum;
- Be a smaller business from any sector (excluding those listed here);
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
On 3 April 2020, HM Treasury announced the following changes to the scheme:
- The scheme has been extended so that more small businesses can benefit; and Lenders are banned from requesting personal guarantees on loans under £250,000.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
The scheme is expected to launch later this month and it is anticipated that it will be available through a range of accredited lenders.
Full details on eligibility will be confirmed later this month, though the government has so far announced that to be eligible businesses must:
1. Be UK-based in its business activity
2. Have an annual turnover between £45 million and £500 million
3. Be unable to secure regular commercial financing
4. Have a borrowing proposal which the lender:
a) would consider viable, were it not for the COVID-19 pandemic
b) believes will enable the business to trade out of any short-term to medium-term difficulty.
Businesses from any sector can apply, except for those listed here.
COVID Corporate Financing Facility CCFF
On 18 March 2020 the Bank of England (BOE) in collaboration with HM Treasury published further details in respect of the COVID Corporate Financial Financing Facility (CCFF) and how the facility will temporarily provide funding to companies. For full detail about what the loan facility offers click here to access the BOE website. The scheme is now available for applications and businesses should liaise with their bank if they think they are eligible. Not all banks provide commercial paper, though UK Finance has provided a list of those banks that are able to assist on its website.
The Bank of England has produced a useful ‘Q&A’ on the CCFF.
Some key notes that should be considered before making an application to participate in the facility are that:
- companies will need to purchase commercial papers, or in other words, loan facilities for the purpose of paying wages and suppliers during cash flow disruption.
- purchases under the facility will be financed by the BOE.
- the facility will be available to businesses who can demonstrate that they were in “sound financial health prior to the shock”. This means that businesses who were already in financial difficulty would struggle to fit the criteria which would otherwise make them eligible to make an application for the facility.
- The BOE will operate the facility for a period of 12 months and will provide 6 months’ notice of the withdrawal of the facility.
There are different factors taken into account by the BOE to determine whether a company is eligible to partake in the facility. The factors mentioned in the BOE’s guidance are that:
1. Companies make a ‘material contribution’ to the UK economy;
2. Companies have significant employment in the UK or with their headquarters in the UK;
3. Companies generate significant revenues in the UK;
4. Companies serves a large number of customers in the UK; or,
5. Companies have a number of operating sites.
To discuss eligibility and provide further documentation, individuals should contact the BOE at firstname.lastname@example.org.
The facility will be under constant review by the BOE and HM Treasury to consider any extensions or variations in the future. The duration of the facility can be between 1 week to 12 months and is credit rating based as at 1 March 2020. Where there no credit rating is available, the BOE will consider whether a long term credit rating can be used to access eligibility.
You should note that in instances that subsidiary companies require funding, the BOE may require parent companies to provide a guarantee to provide adequate security.
There is naturally an uncertainty in respect of how much the loan securities will cost as the BOE continues to keep reviewing pricing in light of market conditions.
Further detail about how the BOE plans to apply pricing is expected to become available shortly.
Submissions of offers
To take advantage of the facility, offers to sell the loan facilities to the BOE must be made by phone between 10am and 11am to the BOE. The minimum size of an individual security that the Fund will purchase from an individual participant is £1 million nominal. The offer amount should be expressed in increments of £100,000 nominal. On the day of the purchase, the BOE will send a written electronic confirmation.
Information about the terms and conditions and operating procedures for the facility will be published on the BOE’s website on 23 March 2020.
It is important to note that the BOE reserves the right to reject applications without explanation.
Businesses that are based in England and in the retail, hospitality and/or leisure sector are eligible for the business rates holiday. Properties that will benefit from the relief will be occupied hereditaments that are wholly or mainly being used:
• As shops, restaurants, cafes, drinking establishments, cinemas and live music venues
• For assembly and leisure e.g. a sports club, a gym or a spa
• Hospitality property e.g. hotels, guest and boarding premises and self-catering accommodation
Businesses need take no action. The business rates holiday will apply to the next council tax bill for the 2020 to 2021 tax year. Local authorities may have to re-issue the next bill automatically to exclude the business rate charge; however they will do this as soon as possible.
The RHLG will apply to the Properties which on 11 March 2020 had a rateable value of less than £51,000 and would have been eligible for a discount under the business rates Expanded Retail Discount Scheme had that scheme been in force.
The SBGF will apply to small businesses with a property that on 11 March 2020 was eligible for Small Business Rate Relief (including those with a Rateable Value between £12,000 and £15,000 which receive tapered relief) and/or Rural Rate Relief.
Businesses do not have to do anything to access these grants. The local authority will write to businesses if they are eligible for the grant.
Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority. Further government guidance can be found here.
All UK businesses are eligible for the VAT deferral. This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period and HMRC will not charge interest or penalties on any amount deferred.
Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period.