Business Solutions During COVID-19 – Talk to Your Bank

By Chris von Strandmann, banking partner at Shakespeare Martineau 

In a very short period of time, COVID-19 has dominated the global and national news agendas. With the majority of the country now instructed to work from home wherever possible, and to avoid going to pubs, clubs and restaurants, a large number of UK business are already feeling the strain.

As the Government moves to – understandably – try and prevent further contagion where possible, businesses of all shapes and sizes will already be feeling the economic effects of the crisis. ‘Business as usual’ has been the overriding message, however in order for this to become a true reality, contingency plans must be put in place. Rather than trying to be too exact about finer details at the moment, a thorough plan should consider a number of possible scenarios, along with accompanying impact analyses, which can flex depending on the changing economic and social landscape.

Chris von Strandmann

All organisations, even those with generous cash reserves, would be wise to open lines of communication with their banks sooner rather than later, as funding is going to be critical for the coming months. Particularly when it comes to cash flow, the requirement for unexpected investment in extra stock to prevent supply shortages could come as a surprise. In this situation, it’s essential to speak to lenders about overdraft facilities, especially if suppliers up the chain are also behind on payments due to cash flow pressures.

The nature of the spread of COVID-19 means that an increasing number of workers are going to be self-isolating if they begin demonstrate symptoms, in an attempt to stem the spread of the virus. However, for businesses, the impacts could be severe if a large proportion of the workforce place themselves in quarantine. New regulations which came into force last week state that employees who show COVID-19 symptoms, and self-isolate in accordance with published guidance, are now entitled to claim statutory sick pay from day one. Despite promises that Government will refund these payments, the timeframe remains unclear and the lag before reimbursement could put even more pressure on cash flow, especially if temporary workers need to be recruited to provide cover.

Employee bases moving to work from home, aside from throwing up operational challenges, could require businesses to unexpectedly source capital to provide suitable IT equipment, such as laptops and mobile phones. All of this will be necessary to keep the business wheels turning, but this investment has to come from somewhere and if cash reserves don’t look like they will stretch far enough, talking to banks about potential short-term funding options would be a wise move.

Cash flow for expenditure aside, many businesses will have several funding agreements in place with different banking institutions. Attached to these could be a range of different covenants, which could be breached depending on the evolving consequences of the COVID-19 crisis. For example, some agreements will often contain ‘clean down’ conditions, which require the businesses to keep accounts in credit for a set number of days each month. Other covenants which could cause issues may be around leverage and debt servicing ability. If a business is aware ahead of time that a breach is likely, then proactive action can be taken to mitigate against this, however any business owner who is unsure should ask the advice of their baking adviser sooner rather than later.

The UK’s banks will be doing their bit for the business community. The sector recently came out with a list of emergency measures, including suspending loan repayments and fee-free emergency loans to help businesses already facing challenges caused by the COVID-19 crisis. Its early days still and support amongst the banking community is only likely to increase.

Importantly – no matter how great the support on offer is – banks hate surprises and they won’t know what they don’t get told. Opening a dialogue at an early stage and laying cards on the table is far more likely to result in workable support than burying heads in the sand. Also, it’s important for businesses to realise that they’re not alone when asking for support – this will be a common situation across the whole of the UK.

Crucial at uncertain times like these is having a plan in place which can flex as circumstances change around the country. Business leaders who feel like the pressure of decision making rests solely on their shoulders should aim to involve other employee groups, if possible. Extraordinary times call for extraordinary approaches and faced with uncertainty, no idea is a bad idea.

No one is under the illusion that the coming weeks and months will be easy for the UK’s business community. However, financial support is out there and it is essential that lines of communication between organisations and their funders are kept open, to ensure that wherever possible, UK businesses weather the storm and come back fighting.