There is a high level of uncertainty and anticipation in the business community at present about government assistance and what it will provide over the short term.
I do not want to burst any bubbles here but if you were struggling before the crisis you will struggle during and after.
If you expect that lending will be easier because of the government guarantee, think again. Lenders still need to credit check your business and if your last set of published accounts was in negative equity this is taken into account.
Also, if the business’s credit rating is poor then the lenders are unlikely to advance any loans to you under this scheme.
COVID-19 loan scheme
The Chancellor’s headline statement of £330bn loan scheme is not government money. It is the lender’s private capital and the government is assuring lenders that the risk they take can be limited to 20% of the total advanced.
It is going to be administered under the Enterprise Finance Guarantee (EFG) scheme and where lenders have a high rate of defaulters, they are punished as the guarantee may be withdrawn across their debtor book.
However, we do not as yet know the mechanics of the latest scheme. But I am seeing posts from banks and other financial institutions appearing to be helpful, but not committing to supporting the local business community.
They need to do what everyone needs, which is injecting cash into all businesses to keep people employed and the wolf from the door of everyone both owner and employee alike.
What does this mean for many businesses?
Do not think that lenders will be falling over themselves to lend money. What you need to do is focus on the business you have control over not what you do not.
Here are some suggestions:
- Undertake a cash flow forecast for the next 12 to 13 weeks. Detail who owes you and who you owe and when the cash was due to be received and paid. Take action now.
- If debtors are overdue then it is your money and you should chase it. I recognise it may be difficult in the uncertainty at present but do not let that put you off trying.
- If trade creditors are chasing you for payment then they are in the same boat as you. If you can afford to pay them then do so. The goodwill you engender by paying suppliers in these difficult circumstances will pay dividends once this crisis has been averted. If you cannot pay all of what you owe, pay what you can.
- If you have HMRC debt ring the helpline [Link] and discuss a time to pay arrangement.
- Are you in talks for funding already? Then do not stop them. At worst, issue a delay notice to the lender to resume negotiations once the situation on government support is clearer or if cash is required to fund current workflows. Then continue with them and consider any assistance, such as the grants as a bonus.
- Complete a risk assessment of where you are now and what you expect to happen to ensure you have covered all the downsides.
Risk analysis worksheet
We have obtained a risk analysis worksheet form our friends at AVN. Get in touch with us if you would like to use it free of charge. We will soon have a free download for you so don’t forget to check back in the next day or so.
Keep up to date with the latest official announcements on the government website.
Tony McNally is Director of Guidon Group and an experienced Chartered Accountant and Tax Adviser. He is based in our Stockton office – although not during the current outbreak of COVID-19