When the Chancellor of the Exchequer, Rishi Sunak, announced further support for businesses on Friday, he basically offered a government underwrite of staff costs to keep UK jobs safe. So, what made him take such action?
Following sizeable impact on the economy during the Covid-19 pandemic, SME’s across the country realised cash-flow crises almost immediately, with many reporting that trading had come to a halt. Priority for the businesses became reducing cash ‘burn-rate’, which ultimately saw a reduction in non-essential costs with suppliers and staff levels. The impact of non-essential suppliers trickled down from big businesses to their suppliers, to the suppliers of these suppliers and so on.
Termed the ‘Coronavirus job retention scheme,’ the new measures specifically support businesses to retain staff where they would otherwise have been laid off. The scheme provides businesses a chance to retain their staff, but they must designate these staff as ‘Furloughed Workers’. Being furloughed means the staff are temporarily unavailable to work, with the government offering to pay these workers 80% of their existing salary, up to a cap of £2,500 per month i.e. all workers earning £37,500 annually or more will have a capped income of £2,500.
This support is available to all UK businesses, irrespective of size. The support ensures that a) workers retain jobs – with emphasis that the lower-paid workers are the jobs at risk, b) businesses are able to scale back employee costs in these tough economic times, and rescale almost immediately when suitable to do so, and c) ensuring employment levels defers other economic challenges, e.g. facilitating mortgage payments for workers.
I recommend checking out the gov.uk website for all currently available businesses support and eligibility criteria.
One of the biggest forms of support announced is the Coronavirus Business Interruption Loan scheme (CBILs). Here’s what it offers:
Government-backed loan, overdraft or asset-finance to businesses whereby the interest will be paid by the government for the first 12-months.
Maximum borrowing is £5m, and UK businesses with a turnover under £45m are eligible
Government is offering 80% security on the lend, which means the lender is culpable for the remaining 20%.
Don’t expect the lenders to be lending irresponsibly. Expect the security provided to enhance the prospect of the lend.
More details are now available about the support. Again I recommend going to the gov.uk (CBILs) website. All major lenders are signed up to this scheme with a total of 40 specialist lenders participating in it. You can view the full list here on the British business bank website.
I have spoken to three businesses across the country in the last week, all of which had halved their workforce and drastically cut back on spending in order to keep the business afloat. In light of the above, I suggested they considered the following:
- Review the business model and offering. The UK is still at work in the main, although many of us are working from home. Can you pivot to offer a service, virtually or through other channels?
- Look at the financial support available to your business from the UK and other providers. Are you eligible for any of it? Reduce unnecessary cash burn immediately. Remember ‘cash is king’!
- Your suppliers and customers are most likely in the same situation as you. What can you do to ensure your relationship lasts during these uncertain times? If you are dependent on one supplier or customer, how can you dilute this risk to your business.
- Plan for this to impact your business for months. There is no economic on/off switch. It will take time for the economy to recover.
Of course, the best outcome for the economy would be to beat the Covid-19 threat asap. And the best way to beat this is to follow the government’s suggestion and isolate from meeting others. Your businesses existence may depend on you, your team and others following these rules.
So, for now, #StaySafe #StayHome and #StayConnected.
A little bit about Benjamin Storey
Benjamin is a Funding Solutions and Business Insights Lead for Eagle Labs in Barclays Ventures. Supporting Eagle Labs and their companies for four years, Benjamin setup and ran the first Eagle Lab incubator in Cambridge in 2015, as well as being Head of Region for the South and East Eagle Labs. Previously Benjamin worked in Barclays corporate bank in coverage-relationship roles. Throughout his career, he has supported businesses from start-ups all the way through to multinational corporates and is well placed to support a variety of businesses.