A Guide To Funding Your Business Through COVID-19

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COVID-19 has caused huge disruption to the global economy, something that has hit UK SMEs hard, especially in certain sectors. There have been daily briefings, multiple rescue packages for businesses and their staff and guidance on how to trade going forward.

The whole thing can be very confusing, especially during an already stressful time. In this guide, I will break down how the government assistance works, how you can access the funding and the options available to you for traditional funding for your business.

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Government Grants & Support

Business Rates Holiday

For businesses in the retail, hospitality and leisure industries, there will be no business rates to pay for the 2020/21 tax year.

There is no action needed from you to secure this, your bill will be reissued by your local authority and with no payment to make for business rates.

Small Business Grant Funding

All businesses with a rateable value of £15,000 or less are eligible for a £10,000 grant to help manage the costs of running the business through this crisis.

The scheme is being issued through local authorities and will be automatically given to you. There is no need to apply, your local council will write to you with details.

This scheme has been announced very recently, so further information is not yet available. If you’re unsure whether you’ll qualify, you can ask your local authority. If you’re unsure how to contact them, you can find your local authority here.

Grants For Larger Businesses

If your rateable value is £15,000-£51,000 and you’re in the retail, hospitality and leisure industries, you will qualify for a grant of £25,000. For businesses outside of these industries, there is no equivalent grant available, but you may well qualify for the Coronavirus Business Interruption Loan Scheme, detailed below.

As with the above grant, you don’t need to do anything to apply, your local council will be in touch with details of the scheme. Again, if you’re unsure whether you’ll be eligible, you can ask your local authority.

Coronavirus Job Retention Scheme

This funding is available to all UK businesses and allows you to claim back 80% of ‘furloughed workers’ wage costs through a new grant scheme. Furloughed workers are those granted a leave of absence from their role during the crisis.

Further details are due to be released, but as it stands, it appears that a new portal is being created to provide details of furloughed workers to HMRC. Once issued, the scheme will backdate wage costs to the start of March and make payments to employers.

The Options Available To Those Looking To Borrow Money

Unsecured Business Loans

Unsecured business loans are still available and can be arranged very quickly – often in 5-7 days. Although some lenders have restricted lending or even stopped accepting new applications, there are still some strong options out there.

Loans are available from £3,000 to £500,000 and terms are available from 6-60 months. The rate charged will depend on the strength of your business and your credit history. The rates charged can vary greatly between lenders, so comparing your options before committing is key.

Through the Coronavirus Business Interruption Loan Scheme, the government will be guaranteeing 80% of certain business loans and overdrafts to promote lending. This means that lenders may be more likely to approve your application due to the government guaranteeing repaying of 80% of the amount borrowed. This scheme is only available through certain lenders.

In addition to the scheme making your application more likely to be approved, the government are also covering the interest for the first 12 months, meaning you will have none to pay.

As some lenders have restricted borrowing, and demand has increased for short-term funding, it can be more difficult to compare your options yourself. Where this is the case or you’re not comfortable, you should speak to a fee-free broker. Most brokers will offer business loans without charging a broker fee, so there is no need to pay one, and I recommend that you never pay upfront ‘advice fees’ or ‘admin fees’.

Secured Business Loans

Secured business loans work in much the same way as unsecured business loans, except the lender takes a charge over a property. The property does not have to be your business premises, it can be your own home or even investment property. Whichever property you offer as security will be at risk if you fail to keep up repayments.

As security is being given, the rates offered by lenders tend to be lower than unsecured loans, and loan sizes larger, from £26,000 with no maximum loan size.

Terms are available up to 25 years.

As assessments need to be made on the security property and the legal process is more involved, applications usually take around 14 days.

Business Cash Advances

Business cash advances allow you to borrow against your future card receipts, with repayments taken daily as a set percentage of your daily card receipts. This is a strong option for businesses who take a lot of money each month through a card terminal.

These facilities can be completed quickly, usually in 2-5 days and could allow you to borrow between £2,500 and £300,000. Your maximum facility will be based on your average monthly card takings.

Business Revolving Credit Facilities

Business revolving credit facilities allow you to borrow funds and repay them as needed. Commonly known revolving credit facilities include credit cards and overdrafts.

In the commercial finance world, these products can be offered to businesses and in addition, some lenders offer standalone facilities that operate similarly.

Under the government’s new Coronavirus Business Interruption Loan Scheme, they’re also offering revolving credit through overdrafts and other facilities. These facilities will also benefit from the 12 months interest break.

Funding can be arranged very quickly, with most applications completing in 2-3 days.

Asset Refinance

Asset refinance allows you to raise funds against your business’s assets and equipment. These facilities either work in a similar way to a business loan or as a sale and leaseback agreement.

Like a secured business loan, you are offering the lender security over an asset, which means that it may be easier to secure funding. In addition, you will benefit from cheaper borrowing, however, the assets will be at risk if you fail to make the payments, so this must be considered alongside the cost.

Asset refinance applications can usually be completed in 7-10 days.

Commercial Mortgages

Commercial mortgages are available up to 80% loan to value, although this may be lower for some sectors.

Where you already own your business, you can remortgage to a new lender to release equity from your property. These applications will generally benefit from low interest rates and can be taken over long terms of up to 25 years. Borrowing can even be taken on an interest-only basis to keep the costs down.

Although these are a great option for those looking to raise money cheaply, there are some disadvantages when comparing them to the above products. Firstly, there are costs of arranging them – valuation and legal fees.

Secondly, the application process takes a lot longer than the other products in this guide – completion usually takes around 8 weeks.

Bridging Loans

Bridging loans won’t usually be the first port of call but can be an invaluable lifeline if the above products aren’t suitable. Bridging finance is designed to be a short-term loan, secured against property to cover a gap in funding – such as a cash flow emergency.

The rates charged are higher than commercial mortgages, which would always be preferable over a bridging loan where you can afford to wait for your funds.

Bridging loan lenders assess applications based on the security offered and your planned exit. This means that funding may be available even if your credit history has taken a hit, or your accounts aren’t in the best shape.

They can be arranged quickly, often in 7-10 days and could be a great interim solution while waiting for a commercial mortgage application to complete.

about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

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