What business loans are available to those hit by coronavirus?

If your business has been hit by the coronavirus outbreak, or you’re worried it’s about to be, you might be relieved to hear the government is offering financial support to struggling business owners.

The trouble is, although the government has put together a £330 billion package of measures designed to help businesses of all sizes, there’s no word yet on exactly how businesses can apply for any of the grants or loans announced as part of that package, or the repayment terms.

What is known is that there will be interest added to any borrowing, and while this could seem like cynical profiteering by the government in a time of crisis, it should be remembered that it’s not actually the government who will be providing these loans, and that’s why any loans will not be interest free.

What financial help is available for businesses during the coronavirus crisis?

The government announced a range of measures to help any businesses who might find themselves in financial difficulty as a result of the coronavirus crisis:

• Statutory sick pay relief package for SMEs
• 12-month business rates holiday for all retail, hospitality and leisure businesses in England
• £10,000 grants for all businesses that are eligible for small business rate relief or rural rate relief
• £25,000 grants for businesses in retail, hospitality and leisure that have a rateable value between £15,000 and £51,000
• Loans of up to £5 million for SMEs through the British Business Bank as part of the Coronavirus Business Interruption Loan Scheme
• A new lending facility from the Bank of England to support cash flows for larger businesses
• Help with tax through the HMRC Time To Pay Scheme
• VAT deferrals. No business will pay VAT from now until end of June. Suspended for the next quarter.
• Coronavirus Job Retention Scheme - Grants covering up to 80% of the salary of workers kept on by companies
• Self-Employed Income Support Scheme - Grants covering up to 80% of a self-employed person's average income over the last three years (including freelancers and sole traders) 
• Changes to insolvency laws and the ‘wrongful trading’ rules  

For more information on any of the above, along with details on how your business insurance might be affected, check out What every small business owner needs to know about coronavirus

What’s the problem?

On the face of it, the government announcement seems to offer valuable assistance to businesses of all sizes, but the lack of detail means many business owners will still be in the dark about whether or not they will provide the necessary financial lifeline.

As with any loan, acceptance is based upon credit score and the current circumstances of each applicant, along with any additional criteria set out by the lenders. So what can businesses do if they’re turned down by one of the government-backed schemes?

If you’re looking into taking on a business loan to cover wages while trading is limited or restricted completely, the government has also announced a scheme that will see it pay grants covering up to 80% of the salary of workers if companies kept them on their payroll, rather than lay them off as the economy crashes. 

The extraordinary payments will be worth up to a maximum of £2,500 per month, just above the median income. Again, there isn’t much information available on how you can apply for this benefit, other than it will be backdated to the start of March, and will be up and running within weeks, open initially for at least three months, and could be extended if necessary. We will add more information as it becomes available.

Why is the government charging interest on these loans? 

The answer to that lies in the fact that it’s not actually the government who’ll be providing the loans, that will be the job of the lenders affiliated with the British Business Bank - around 40 in total, each of which are private companies that will incorporate both risk and profit into the terms of lending.

And, as with any type of loan, the interest rate is set to reflect the risk to the lender - the higher the risk, the higher the interest rate - so if banks are going to be lending to businesses who might not survive the crisis, or not have the means to meet repayments if they do, then the interest rate will be set accordingly.

The government has stressed there’ll be no interest payments for the first six months, and rates on these loans will be ‘favourable’, which means it may still be single digit interest rates as the banks are borrowing from the Bank of England at 0.1%.

The interest rate charged on any loans will depend upon the size and circumstances of the business taking out the loan, and the amount it wants to borrow.

And any businesses that apply will need to show continual affordability and not signs of distress - it may sound harsh, but banks will not be throwing good money after bad - and business owners might even need to put up security on the loans.

So, what is the government offering?

Although not offering up the actual cash, the government is offering a guarantee of 80% on each loan, which means it will cover the cost of any non-paying borrowers up to 80% of the total loan amount.

This is done to encourage the banks to lend and the government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value.

How to apply for a Coronavirus Business Interruption Loan

To apply for a Coronavirus Business Interruption Loan, you need to directly get in touch with one of the British Business Bank’s 40+ accredited lenders, all of which are listed on the British Business Bank website.

If your own bank is taking part in the scheme, you should apply to them first, pereferably via their website, as telephone lines are likely to be busy and branches may have limited capacity to handle enquiries due to self isolation and social distancing. 

You should only approach other lenders if your current bank isn't on the list.

To be eligible for a facility under the Coronavirus Business Interruption Loan Scheme (CBILS), your application must be for business purposes and your business must meet the following conditions:

• It must have been trading for at least two years.
• It must be able to show maintainable turnover during the current crisis.
• It must not have any adverse credit or CCJs.
• It must be a UK-based SME with annual turnover of up to £45 million.
• It must generate more than 50% of its turnover from trading activity.
• Your CBILS-backed facility will be used to support primarily trading in the UK.
• You wish to borrow up to a maximum of £5m. (Finance terms are to six years for term loans and asset finance. For overdrafts and invoice finance facilities, terms will be up to three years).

There are also some restrictions, and the following sectors will not be eligible for CBILS-backed loans:

• Agriculture
• Education
• Freight and Transport
• Travel and Tourism

Any decision to lend will be down to the individual lender, and if lenders can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

And remember that the  government’s CBILS guarantee is to the lender and not your business. As with any other commercial transaction, as the borrower you are 100% liable for repayment of the facility supported by CBILS.

The scheme is designed to support smaller businesses (SMEs) who don’t meet a lender’s normal lending requirements for a fully commercial loan or other facility, but who are considered viable in the longer-term.

Are self-employed business interruption loans available for sole-traders and freelancers?

If you're self-employed, whether you operates as a sole trader, freelancer or limited partnership, you can apply for a business interruption loan via the scheme, so long as you operate through a business bank account and trading activities generate more than 50% of your turnover.

The government insists it is working on further measures to help the self-employed, and we will update this blog as soon as any more information becomes available.

In the meantime, if you're self-employed, you can to defer self-assessment tax payments and should apply for universal credit and Local Housing Allowance as soon as possible. If you're a homeowner, you should also speak to your bank about a mortgage payment holiday.

How to apply for a government grant to cover wages or earnings

The government has announced two grants to help cover the earnings of employers and the wages of employees:

• Coronavirus Job Retention Scheme to pay 80% of employees wages.
• Self-Employed Income Support Scheme to pay 80% of a business owner's average income.

There's still no information available on how to apply for these grants, so we will update this section as and when the application and payment mechanism becomes available.

What is the Coronavirus Job Retention Scheme?

The Coronavirus Job Retention Scheme is a grant for employers who can't cover staff wages due to COVID-19. It's designed to make sure as many people as possible can be kept on the payroll and help avoid mass redundancies.

To apply, you'll need to make sure employees are classified as furloughed workers, which means they can not do any work for you during this time and you can claim a grant of up to 80% of each employee's wage, up to a maximum of £2,500 per month.

If you're the director of a business and you pay yourself a salary through PAYE, you'll also be able to claim this benefit, so long as you classify yourelf as a furloughed worker and don't do any work while claiming this benefit.

Grants will be available by the end of April, payments will be backdated to March and the scheme will last for at least three months.

What is the Self-Employed Income Support Scheme?

The Self-Employed Income Support Scheme will pay self-employed people who have been adversely affected by the coronavirus 80% of their average income over the last three years, up to £2,500 per month, for at least three months.

Open to business owners with an income of £50,000 or less, who make most of their income from self-employment, the benefit will be based upon up to three years' worth of tax returns.

The scheme won't be up an running until June, and if you're a new business who has not yet filed any tax returns, you’ll not qualify for this benefit – if this April's tax return is to be your first, you should still submit it.

In the meantime, you should apply for Universal Credit and housing allowance as soon as possible, as the government has promised advanced payments within days of a claim being made. It might also be worth looking into other financing options including business interruption loans, payment breaks and mortgage holidays.

It was originally believed that business owners who pay themselves via dividends would be eligible to apply, but it seems this is no longer the case, as dividends aren't regarded as income.

What if you're a freelancer on short-term PAYE contracts?

Unfortunately, if you're a freelancer or contractor who is usually employed via a number of short term PAYE contracts, it looks like you could be left high and dry as there is no government provision for this - as you're on PAYE, you'll not be able to claim under the Self-Employed Income Support Scheme, and as your contracts are short term, it's unlikely you're employer will be able to claim under the Coronavirus Job Retention Scheme.

If this is the case, the advice again is to apply for support through Universal Credit and housing allowance.

Are there any other business financing options available?

If you’re interested in the loans or grants announced by the government, Bionic has full access to 75% of the lenders on the scheme.

It’s also worth considering some alternatives that are available, such as interest-only overdrafts or bridging loans. Speak to the business finance team at Bionic to find out more.

Bionic Financial Services Limited. Registered in England & Wales Registered No: 07548195 Registered company address: 4th Floor, The Minster Building, 21 Mincing Lane, London, EC3R 7AG Bionic Financial Services Limited is authorised and regulated by the Financial Conduct Authority. Think Business Loans is a trading name of Think Business Finance Limited, registered in England and Wales, company number 07115888. Registered office address: The Minster Building, 21 Mincing Lane, 4th Floor, London, England, EC3R 7AG. Think Business Finance Limited are authorised and regulated by the Financial Conduct Authority 724300 and operate in accordance with the Data Protection Act 1998, ICO registration number Z2226484. As a mortgage is secured against your home or other property, it could be repossessed if you do not keep up the mortgage repayments. Think carefully before securing other debts against your home. Think Business Finance Limited act as a Commercial Finance Credit Broker and not a Lender