Government advice for small businesses during coronavirus

Jürg Widmer Probst

Government advice for small businesses during coronavirus

Jürg Widmer Probst - small business coronavirus

Countless small business in the UK are facing a dramatic challenge due to coronavirus. Whether facing a drastic loss in cashflow or an uncertain future due to lockdown, small business owners up and down the country are concerned.

Projects are being postponed and, in some cases, work is drying up completely. For other businesses, clients are asking for leeway on paying bills, and thousands are furloughing employees. This essentially means their employees are on leave with the Government pledging to pay 80% of their salary, capped at £2,500 per month.

How is the Government helping small businesses?

The Chancellor announced a rescue package for small and medium sized enterprises (SMEs). This includes various initiatives as part of an overall package of financial support, including a Business Interruption Loan Scheme.

One of the most significant parts of the financial package is the Job Retention Scheme. The idea of this is to avoid mass redundancies due to COVID-19. It allows employers to keep their staff effectively in their jobs so that they can go back to work as soon as it’s safe to do so. This is where furloughing employees comes in. It’s worth noting that the £2,500 per month paid by HMRC is still subject to national insurance and tax.

Initially, the scheme is intended to continue until the end of May 2020. However, the Government says that it may be extended if necessary. It applies to every individual who were employed from 28 February 2020, and includes full time, fixed term, part time, zero-hour and casual contracts. If an employee is furloughed, they cannot work, but may undertake voluntary duties for a charity or the NHS.

Alternatively, employers have the option to ask their staff to become temporarily part time. However, small business owners must, of course, comply with all contractual and employment rights of each employee. In addition, a number of managers and company owners are voluntarily taking pay cuts of 20% or more.

How else can small business owners mitigate problems during coronavirus?

Managers and business owners must check with their clients, as everyone will be affected differently by the crisis. Getting an early understanding of what kind of work is due to come in down the line, and whether it will still be coming is essential for SME owners. Don’t assume anything, but plan ahead. Managing client, customer and stakeholder expectations has never been more important. Here are some suggestions that will help small business owners get on top of their work during the crisis:

  1. Proactively chase outstanding payments

It’s a worrying time for everyone, but it’s important to ensure any work already done is paid for. Speak to customers and ask them to pay outstanding invoices as soon as possible. Self-employed people and small businesses should take this opportunity to request immediate payment. Several large corporations are ensuring they pay their small business suppliers instantly in order to help them stay afloat.

A number of blue-chip companies have accelerated payment options, and these are worth exploring. Invoicing should continue as quickly as possible. Small businesses should have contingency plans in place to deal with billing processes should there be an interruption to normal business. This includes getting invoices out and double checking all details are correct.

  1. Communicate with your suppliers

Proactively talk to your suppliers to find out how they are dealing with the crisis. Negotiate extended terms where possible. It’s likely that key suppliers will be able to adjust their payment terms.

If you are struggling with late payments from your clients, talking this through with suppliers might help to relieve the pressure on your cashflow. Open communication is absolutely vital during any time of crisis, and particularly with this open-ended situation.

  1. Ask for a payment break on rent

If your business is experiencing a significant drop in income and trade, this could make it difficult to make your rent payments. Governments have indicated that landlords should take a compassionate approach, given the unprecedented circumstances. This could be in the form of delayed payments, a rent break or discounts.

There is state protection for any commercial tenant that cannot pay rent due to coronavirus. This means that no business can be forced out of their premises for missing rent payments up to and including 30 June 2020. However, this does not mean an automatic rent holiday for every business, and companies that can pay are still obliged to do so.

  1. Apply for Government loans

SMEs with a turnover of £45 million or less can apply for the Coronavirus Business Interruption Loan Scheme, which is backed by the Government. This gives access to interest free invoice finance, asset finance, loans or overdrafts up to £5 million to help small businesses make it through the crisis.

To be eligible, SMEs must prove they are successfully trading but need extra support due to short term issues caused by the pandemic. As part of the initiative, loans are being provided by 40 key lenders, including NatWest, Lloyds, HSBC and Barclays. It will run for an initial period of six months, with payment terms of up to six years. The Government pledges a grant that covers initial fees and interest for 12 months, and in addition will guarantee 80% of the loan. The scheme is operated by the British Business Bank and began on 23 March 2020. It’s also open to freelancers, limited partnerships, sole traders and the self-employed. You should go to your own bank with your initial inquiry.

 

 

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