By Nic Redfern, Financial Director, NerdWallet UK
For many businesses around the world, the health, social and economic impact of the coronavirus pandemic represents the biggest challenge they have ever faced.
In the UK, research by Opinium in late March revealed just how serious things had already become. It found that approximately 7% of the country’s SMEs had already shut permanently as a result of coronavirus, with an additional 12% stating that they are likely to do so by May. On top of this, two fifths (39%) had closed temporarily or were planning on taking this action within the next month.
Given SMEs represent 99.9% of all private sector businesses in the UK, and employ more than 16 million people, the fact that so many are either permanently or temporarily having to close down is of great concern. For those still open, therefore, it is of paramount importance that they can access financial support when needed – doing so could make all the difference in their bid to survive this unprecedent crisis.
Here is some advice for any SME seeking financial support.
Getting your house in order
First things first, before SMEs approach any bank or scheme for a financial support, they must get their own house in order. Whether it is a loan or grant, the lender will require absolute transparency of a business’ finances before they decide to hand over the capital.
There is no shortcut to this take – 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.
Further, they must have a strong handle on other financial considerations. For example, does the business have existing debts? Does it own stock, property or equipment? Is there a large order book full of overdue invoices that could soon drop into the business’ account? These factors will also be important when apply for finance.
Lenders need to see this information. But such due diligence also benefits the business itself, providing a clear indication of how much financial support it will need to survive the crisis.
I would urge SMEs to avoid the trap of thinking too small. Wanting to avoid unnecessary debt or remaining optimistic are both good traits, but businesses must plan for the worst-case scenario – after all, it could be many months before the pandemic eases and things return to something resembling normality.
Underestimating the amount of financial support that the business needs will typically result in the entire loan application process having to be repeated in the future, thereby consuming more time and effort.
Weighing up all the options
Once an SME has its house in order, it must review the options it has before it – 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, which is essentially a rebadged version of the existing Enterprise Finance Guarantee, has consumed a lot of media attention since it was unveiled in March. It was 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, as the Government’s flagship support scheme it has come under fire. As of 14 April, a total of 6,020 loans worth £1.1 billion had been issued under the CBILS – this represented a significant rise on previous figures, after the initiative took time to gather pace. Yet only 21% of applications had been successful; not only does this reiterate the importance of being diligent in preparing both financial records and applications, but also the need to consider what else is out there.
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.
Resilience and adaptability will be key
The picture is constantly changing. Financial supports are being changed, new ones are being introduced, and the economic landscape is shifting with each major government announcement.
This requires SMEs to remain adaptable. Importantly, businesses should not feel isolated as they try to understand what financial support to apply for and how to do it; help is available. I would encourage SMEs to use brokers and intermediaries if they need to – their expertise can make the challenge far more manageable.
More generally, a resilient mindset will be important. Indeed, applying for business loans can be stressful at the best of times and, in truth, many SMEs will have their applications rejected. They must take such news in their stride and plan accordingly.
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 – right now we are working with a lot of SMEs who are 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 has done before. They may not have ever considered it before. So, preparation and due diligence are key – without them the chances of getting a loan, grant or investment are greatly diminished.