Short-term funding amid Covid-19: alternatives for government support

The UK Government has introduced a number of measures for businesses and individuals over the last few weeks in a bid to provide options for those struggling with the commercial and cash impacts of COVID-19. However, not all businesses may qualify for these support measures, and/or not all of these measures may suit the needs of individual businesses.

In this article, we look at various additional options that businesses can consider for their funding needs.

Government support measures

Some of the most notable schemes announced by the Government so far include:

• Coronavirus Business Interruption Loan Scheme (CBILS). Offered through British Business Bank partners
• Coronavirus Job Retention Scheme
• 3 month extension to filing of annual accounts
• Deferment of VAT and self assessment payments

(For a comprehensive list of all government support schemes, see our summary of government support for businesses affected by Covid-19 here).

Whilst these initiatives go a long way to alleviating some of the pressures faced by SMEs, they do not provide a total solution to all of those that they are designed to help. There remains a very real and pressing challenge for those seeking to participate in these schemes and more widely to those seeking appropriate funding structures to carry their business through the next few months. Banks participating in CBILS, for example, are still applying strict lending assessment criteria to businesses in need of a loan and many are failing to clear these hurdles.

Additional options for short-term funding for businesses

Once cash preservation exercises like VAT deferment are executed there may still be a necessity to consider other lending options, and reassuringly there are lots of alternative lenders and types of borrowing to consider:

• Invoice discounting: high street banks, challenger banks and other specialist finance providers offer a range of terms for lending against a company’s debtor book. Typically debtors are assessed on size, customer concentration, debtor terms, ageing of debt and historical debtor profiles.
• Trade finance: depending on the nature of a business’s trade it may be able to raise finance against the stock on the balance sheet or set up a trade facility to fund purchases over the coming months.
• Asset finance: asset purchases that are requisite for ongoing operations of a company could be acquired using asset finance facilities instead of from cash reserves.
• Cash flow loans: profitable businesses should still be assessed on historical trading performance and the underlying viability and strength of the company.
• Director loans: shareholders could temporarily inject money back into the company, with terms to be agreed between the two parties.
• Changes to existing funding lines: current funding arrangements could be renegotiated with either the extension of facility levels, longer terms or payment holidays.
• Financial investment: partnering with a financial investor could prove beneficial in both the short and long term but clearly would include an equity compromise.
• Regional loan funds: the level of regional funding available from both European and UK government institutions remains the same. These include the Northern Powerhouse Investment Fund, Merseyside Special Investment Fund, Business Growth Fund and Greater Manchester Combined Authority.

How we can help

Lenders requirements to provide facilities such as the short-term funding options detailed above will be assessed on a case by case, business by business basis.

In most cases however lenders will require a solid business plan and a clear statement of how the funds will be used.

DTE can assist with your funding queries and applications by:

• Reviewing existing financial models and business plans;
• helping to create financial models and business plans suitable for institutional submission;
• assessing funding options based on historical financial performance and the current balance sheet;
• providing advice on personal and corporate tax arrangements (for instance if cash is loaned to the company from shareholders);
• negotiating with existing funders on terms and quantum;
• identifying suitable funders and making introductions; and
• comparing funding offers and supporting discussions with new providers.

If you would like to get in touch with a member of the DTE Corporate Finance team to discuss your current situation and the ways in which specific assistance can be provided, please email us at .