Advice for SMEs seeking financial support amid coronavirus pandemic
The process of obtaining a business loan can be challenging at the best of times. Normally, though, the loan is part of a larger restructuring or growth plan, whereas at present companies across the UK are requiring financial support just to survive.
The COVID-19 pandemic has resulted in many financial markets grinding to a halt, with businesses struggling to remain afloat. This is particularly true of small and medium enterprises (SMEs), which typically lack the cash reserves to weather such a turbulent storm, so here, Nic Redfern, Financial Director, KnowYourMoney.co.uk gives some advice to help us through these times!
Research conducted by Opinium at the end of March 2020 illustrates the point – it found that approximately 7% of SMEs in the UK had already shut permanently as a result of coronavirus, with an additional 12% stating that they are likely to do so by May. A further 39% had closed temporarily or were planning on taking this action within the next month.
These are startling and worrying figures. In the UK, SMEs account for 99.9% of all private sector businesses – in total, there were 5.9 million of them across the country at the start of 2019, accounting for 16.6 million jobs (60% of the national total) and a combined turnover of around £2.2 trillion (52%).
The livelihoods of millions of people are at stake. As is the health of the national economy. So, crucially, how can SMEs gain access to the financial support they need to survive the coronavirus crisis?
Getting your house in order
The first step SMEs must take is to get their own house in order. Any lender or investor will require absolute transparency of a business’ finances before they decide to part with their money – approaching them before ensuring you can deliver this is futile.
Utilising in-house resource or external support, SMEs need to bring all their accounts up to date, demonstrating precisely what has come into and out of the business for the past five years or even longer.
There are other financial considerations, both positive and negative, to factor in. Namely, an SME applying for finance must be clear on any existing debt that it has. But it should also have a clear view over potential incomings, including things like outstanding invoices and the value of stock or other assets (such as property or equipment) that it owns.
All of these criteria will enable a lender to establish the general financial strength of the business beyond the current hardship that it may be facing due to the COVID-19 pandemic.
But this initial due diligence is not just for the lenders’ sake; it will also give the business itself a clear indication of how much financial support it will need to survive the crisis. There is a tendency among business leaders to underplay the figure required – this is often due to a combination of optimism and not wanting to take on too much debt.
However, if an SME receives a loan, grant or investment that is insufficient for its needs in the worst-case scenario over the coming 12 months, then it will have to repeat the whole process. This is more difficult and time-consuming than securing a big sum in the first instance.
Weighing up all the options
With the housekeeping complete, the next step is to understand all the available options. What is right for one business might not be right for another – and there are probably more forms of financial support available than an SME might realise.
The UK Government has responded positively to introduce a number of measures to help the UK’s private sector through the crisis. Business rates relief and financial support for furloughed staff are two such examples. Another is the Coronavirus Business Interruption Loan Scheme (CBILS).
The CBILS is essentially a rebadged version of the Enterprise Finance Guarantee. It has been created with the aim of providing financial support to SMEs that are losing revenue and seeing their cashflow disrupted as a result of the COVID-19 pandemic.
However, despite the fact that it has consumed a lot of media attention, SMEs must not see the CBILS as the only option; there are many potential avenues to explore.
There remain other grants and forms of financial relief available from the public sector; there are, of course, also the usual types of business loans and investment within the private sector. And these are not just on a national level – regional initiatives also exist.
For example, the Greater Manchester LEP has created a £3 million package of financial support for businesses across the region battling the impact of coronavirus. Similar schemes exist in other areas, with more being created all the time.
The process of weighing up all the options naturally consumes a lot of time. And, in many instances, it may require some additional help or advice to guide the SME towards the most suitable options. Thankfully, that is readily available, too.
Adapting as things change
As mentioned above, more financial supports are being created all the time by both the public and private sectors. Moreover, existing initiatives are also changing as the coronavirus pandemic evolves.
The CBILS initiative is a prime example of this. In the two weeks after it was launched, only around 1,000 loans worth were processed for UK SMEs. Organisations criticised the scheme for being too complicated and restrictive.
Indeed, it prompted the Federation of Small Businesses’ chair Mike Berry to state: “[SMEs] were promised interest-free, fee-free, government-backed support from banks but, until now, the process for securing it has proved nightmarish for many.”
But improvements are being made. For one, the Bank of England has launched the Term Funding Scheme for SMEs (TFSME).
The TFSME delivers a range of supports and incentives to the lenders themselves. This, in turn, will help ensure more capital makes its way to the SMEs who need it.
And positively, on 15 April it was revealed that SMEs had now received £1.1 billion under the CBILS, with approvals doubling. In fact, 1,800 loans worth more than £300 million were approved over the Easter weekend.
This underlines the changeable nature of things at present. Therefore, SMEs must constantly assess and reassess the options that are available to them. Businesses must also demonstrate an element of flexibility in creating financial plans for the months ahead.
Remain resilient and seek help if needed
There is a final piece of underlying advice that I would offer to SMEs: remain resilient. In truth, many of the SMEs who are seeking financial support will encounter dead ends and rejections along the way. Business leaders must take such setbacks in their stride and realise that there are other options still available.
This advice comes from experience. For over a decade myself and the team at KnowYourMoney.co.uk have been working with UK businesses to help them to find loans and financial products that fit their needs. And right now we are focusing a lot of effort onto SMEs trying to secure finance through the CBILS.
Getting financial support can be a complicated and daunting process; especially if it is not something an SME had ever considered before the current crisis. Preparation and due diligence are both essential – without them the chances of getting a loan, grant or investment are greatly diminished.
But a business should not feel isolated; help is available. I would urge SMEs to use brokers and intermediaries if they need to – their expertise can make the challenge far more manageable.