Covid-19 Coronavirus is undoubtedly causing a serious slow-down in the economy which will continue for an indefinite period of time.

With fewer people going out and about how are SMEs in any sector, particularly in retail and in hospitality and those supplying services into those sectors, going to access the funding they need to bridge the gap in the short-term and in the longer-term as the Coronavirus pandemic unfolds? Another question is whether you should be taking on any additional funding at all?

Click here to find out what Pegasus Funding Solutions is doing to help small businesses during the Coronavirus pandemic

Access to funding is likely to become more difficult. We have already seen some smaller lenders pause lending. This is a worrying news. In order to survive and weather this storm there must be a free flow of cash in the economy. This is where the government needs to weigh in with economic assistance for SMEs, which are the backbone to the UK economy.

The government’s business interruption loan is a reworking of the enterprise guarantee scheme and will make funding available. However, it is important to remember that SMEs seeking support must have a sound business model with good projections based on solid cashflow forecasting. The funding is there, but for the right businesses.

Click here to find out what other measures the government has put in place to help small business during this difficult time.

Lenders also need to help. The Bank of England has further cut interest rates, but lenders can do more, such as providing commercial mortgage holidays or converting capital repayment mortgages and loans into interest-only mortgages for a fixed period to help reduce business’ liabilities. There is support for employees being rolled out, but we need to see more support for business.

There needs to be other ways of helping the businesses in all sectors, such as pumping extra money into the economy to support them.

In terms of finding funding for your business, here are some things you can look at in the short-term:

• Coronavirus Business Interruption Loan Scheme (CBILS)
• Commercial loans and overdrafts
• Invoice-based funding
• Asset refinance
• Peer2peer funding

Coronavirus Business Interruption Loan Scheme

The Chancellor revealed the Coronavirus Business Interruption Loan Scheme (CBILS) in his recent budget. This scheme has replaced the EFG scheme. However, there are strict criteria the need to be met if your business is to be eligible. To be eligible for support via CBILS, the SME must:

• Be UK based, with turnover of no more than £41 million per annum
• Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support)
• Have a sound borrowing proposal, but insufficient security to meet a lender’s normal requirements
• Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years

An accredited lender can use CBILS to help a borrower access from £1,000 to £1.2 million. Finance terms are from three months up to ten years for term loans and asset finance and up to three years for revolving facilities and invoice finance. Businesses can access the first 6 months of that finance interest-free, as the government will cover the first 6 months of interest payments. Questions around how Coronavirus is affecting your business will need to be addressed.

Commercial loans and overdrafts

A short-term loan or overdraft might be an easier and more achievable solution in the short term depending on the criteria surrounding CBILS. Banks and alternative funders have various decision-making protocols in place. How quickly you get a decision and can draw down funds depends on whether you satisfy their criteria and how quickly you provide the information that they ask for.

Typically, the decision-making process for a commercial loan through a traditional bank takes from three to six weeks and with alternative lenders from one to three weeks or even days. The rates you achieve will depend on whether the loan is secured or unsecured and if you are not a homeowner, then the amount of lenders available to you will be greatly reduced, however CBILS should be available.

Business loans and overdrafts are handy because they are available at any stage in the business lifecycle and they’re cost effective. Click here to find out more about how Pegasus Funding can help you source a commercial loan.

Invoice-based funding

Invoice finance provides a quick win where an injection of cash is needed, but it’s not always the most cost-effective solution; you pay for the convenience of speed and accessibility.

A lender will effectively pay up to 90% of an invoice upfront, but this % will vary depending on the sector you work in and is only available to businesses selling other businesses and not consumers. When the invoice is paid by the customer, the business receives the outstanding amount minus the lender’s fee. This can be done on a single invoice, selective invoices or across your whole debtor book.

Check out our recent blog on invoice discounting to find out more.

Asset refinance

If your business has physical assets with a slow depreciation rate, such as specialist equipment or machinery, you could be sitting on a potential funding solution without realising it. Asset refinance is a product that allows your business to release the equity contained in any assets, which are not subject to any outstanding finance.

Asset refinance releases cash by using the equity contained in any high-value and unencumbered business assets on your business’ balance sheet.

Lenders will need to know what the asset is, how it’s used and how much it’s worth. They’ll appoint a qualified surveyor to inspect and value the asset you intend to refinance, this could be done remotely.

When you refinance, you’re transferring ownership of the asset to the lender, but you’ll still be able to use it for your business without interruption. When you’ve fully repaid the agreement, ownership is transferred back to your business. Remember that, because asset refinance is secured, lenders can seize the asset if you fail to keep up your repayments.

How much you can borrow on the value of the asset is determined by the surveyor. You repay your loan using fixed monthly repayments over an agreed period until the agreement has been fully repaid, plus interest.

Whether you’re a developing or established business, you need to make sure that asset refinance is an option for your business.

Peer2peer funding

Peer-to-peer lending (P2P) is a way for one individual to lend directly to another cutting out the middleman, i.e. the financial institution.

P2P lending websites, like Funding Circle and ThinCats, connect you directly to investors. The site sets the rates and the terms, and then enables the transaction, and you’ll find a wide range of interest rates based on your creditworthiness.

Rates for applicants with good credit are often lower than comparable bank rates. Rates for applicants with sketchy credit records may go much higher.

For lenders, peer-to-peer lending is a way to generate interest income on their cash at a rate that exceeds those offered by conventional savings accounts.

Like banks and alternative lenders, the sites will charge loan origination fees, late fees, and bounced-payment fees.

Getting help

Once you’ve recognised that there’s a problem, you need to do something about it.

Download our Guide to Funding

Even if you’re confident you can go it alone, it’s advisable to seek assistance outside the business.

Your accountant should be able to give you an impartial assessment of your problems, and there are always other professional advisors you could turn to for help. This is where we come in.

For help with securing funding for your business, contact Pegasus Funding Solutions today.