Funding your business through the COVID-19 pandemic

Businesses across all sectors have undergone huge changes over the last few weeks as a result of the coronavirus pandemic. Some industries have seen their doors close, or demand slump, whereas others are seeing upswings in demand and can’t afford to restock quick enough.

There has been a lot of information coming to light over the last couple of weeks with the funding available during the COVID-19 pandemic, which has been confusing for some.

In this guide, Gary Hemming – the commercial lending director for ABC Finance, will break down the funding available from the government for the COVID-19 pandemic, in addition to those available through the commercial finance market.

Government grants & funding

Grants for business owners

Some businesses in England are entitled to grants, either £10,000 or £25,000, depending on the rateable value of your business and the type of business you run.

For businesses with a rateable value below £15,000, a grant of £10,000 will be due to you. For businesses in the retail, hospitality and leisure industries, with a rateable value between £15,001-£51,000, a grant of £25,000 will be due.

You don’t have to apply for the grant, instead, your local authority will get in touch in early April with further details. There is no clear timeline on when grants will be paid, so if you need funds quicker than this, or more funds, you may want to consider a business loan (details below).

If you’re unsure whether you qualify, ask your local authority. Details of your local authority and their contact details can be found here.

Coronavirus Job Retention Scheme

This scheme allows you to retain staff who would otherwise be made redundant or given leave without pay during the crisis. In this case, you can classify workers as ‘furloughed’. This will be done through a portal, which is currently being built by HMRC.

The government will then pay 80% of the furloughed workers wages during the crisis, up to a maximum of £2,500 per month. It is left to the employer’s discretion whether they pay the additional 20%.

Borrowing money – the options available

Business loans

Business loans are available either secured against property or unsecured. In addition, the government have announced the Coronavirus Business Interruption Loan Scheme, which provides a new option for COVID-19 funding. They work on the following basis:

Traditional Unsecured business loans

  • Allow you to borrow between £3,000-£5,000
  • Over 6-60 months
  • Can be arranged in 5-7 days

Secured business loans

  • Borrow from £26,000 with no maximum loan size
  • Over terms from 3-25 years
  • Can be arranged in around 14 days

Coronavirus Business Interruption Loan Scheme

  • Borrow up to £5million on an unsecured basis
  • Government guarantee 80% of the loan for the lender, meaning you’re more likely to be approved
  • Your first 12 months interest are paid by the government
  • Short-term cash flow problems due to coronavirus are ignored in the application process
  • Funding can theoretically be completed in 5-7 days, although it may take longer due to the volume of applications

Revolving credit

Business revolving credit facilities allow you to borrow and repay funds as needed. The most well-known revolving credit facility is the overdraft, although some lenders offer standalone facilities for businesses, which are managed through online portals.

Some facilities even fall under the Coronavirus Business Interruption Loan Scheme, meaning you could have no interest to pay for the first 12 months.

Funding can be arranged in 2-3 days.

Asset refinance

Asset refinance can be used to raise cash against your business assets, either as a loan or sale and leaseback.

The amount offered will depend on the value and type of assets offered. Applications usually complete in 7-10 days.

Commercial mortgages

Commercial mortgages can be used to raise capital using your property, usually up to 80% of the property value.

They benefit from very low rates and long terms of up to 25 years. In some cases, you may even be able to borrow on an interest-only basis, keeping your repayments to a minimum.

The application process can be quite time consuming compared to the other products in this guide, applications usually take around 8 weeks.

Bridging loans

A bridging loan isn’t usually the first port of call but can be used where funding must be secured against your property, but you need funds quickly. The rates charged are higher than those on commercial mortgages, but applications are much quicker, taking around 14 days to complete.

You can borrow up to 70% of the value of your commercial property and can roll the interest into the loan, paying it at the end of the term.

Bridging loans are usually arranged for 12-18 months but can be taken for up to 3 years.

Applications are based on the security property and your exit strategy – the way you’ll repay the loan, usually sale of the property or refinance to a commercial mortgage.

Applications can be completed quickly, usually in 7-10 days.