The measures are designed to support cash flow and inject liquidity into the economy. They might be a lifeline for many companies, but directors must also consider the implications of further borrowing – the lifeline may only offer temporary relief for an already struggling business.

What additional financial support is there?

On top of and extending measures announced in the UK Budget, the Chancellor has announced additional Government backed funding and guaranteed loans of £330bn that any business who needs access to cash, can access.

The new measures are focused on easing cash flow pressure and assisting with fixed costs such as rent and include:

  1. For larger firms there will be a new lending facility to provide low cost cash.
  2. The Coronavirus Business Interruption Loan announced in the Budget last week will be extended – smaller businesses can borrow up to £5m loans with no interest due for 6 months.
  3. Businesses that have insurance for a pandemic, can claim.
  4. For a business that doesn’t have insurance covering a pandemic, there will be additional cash grants of up to £25,000 – aimed at the hospitality and leisure sector.
  5. There will be grants for smaller businesses of up to £10,000 an increase on the £3,000 offered in last week’s budget.
  6. There will be NO business rates for 12 months for all retail, hospitality and leisure businesses.
  7. If a business has a rateable value of less than £51,000 it can apply for a cash grant.

The Government is also considering a package of measures for specific sectors, in particular airlines and airports but other sectors have been identified.

As a reminder, companies can agree time to pay agreements with HMRC in respect of its tax liabilities, assisting with and providing immediate cash flow.   We have seen an increasing number of companies take advantage of this and have assisted with that.  However this needs to be done in the right circumstances – using money that is available to pay tax for other business costs could cause difficulties for directors further down the line if the company ultimately fails.

For individuals struggling to pay their mortgage as a consequence of measures in place to deal with Covid-19, they can get a 3 month mortgage payment holiday and there will be new forms of employment support to protect jobs. This is important for UK businesses to keep the economy afloat, as without consumers and end-demand businesses will struggle to survive regardless of any financial support offered.

A word of caution………..

As noted above, these measures are designed to support cash flow and inject liquidity into the economy. They are welcome and might be a lifeline for many companies, but directors must consider the implications of further borrowing.

If the underlying business was already under pressure or if the future viability of the business is in doubt, further borrowing may not be the answer.

Yes, the economy will recover at some point, but the loans are repayable and a grant may only mask what is an underlying problem with the business.

It is therefore vitally important that directors consider the implications of further borrowing on the business’s cash flow and the strength of the balance sheet, not just now, but in the longer term. Even in these difficult times, directors must ensure that the correct advice is sought and the correct actions are taken.

The above measures are just the next stage, further measures will be announced in the coming days but the key message for today is, there is support, but directors must consider whether that support is right for the business.

To assist in identifying business risk – see our online assessment tool.