When an Inspector calls...financial support during COVID-19

What happens if the government’s financial support is not enough? No sooner have we got to grips with one change from COVID-19 than something else happens and we have to start again. Most hotels have now closed completely, but a few remain operational as a building to support NHS staff, the homeless and others in need. Working with an advisory expert, Deborah Heather of Quality in Tourism has put together this practical guide to navigating the financial support available, which is correct at the time of writing on 25 March 2020.

We all know the basic facts about COVID-19; hotels have had to shut and they’re not going to be open anytime soon – but that doesn’t mean all your operational costs have gone too, nor is it clear how long you will have to survive with the closure. The government has stepped into the breach with a number of emergency measures to help keep businesses afloat even if you’re not operational, but what if that isn’t enough?

First off, let’s recap the Government’s solutions:

  • Job Retention Scheme / ‘Furlough’ payments: in a bid to support businesses and employees as you’ve been forced to close, the government is offering to cover 80% of wage costs if employees are put on ‘furlough’. Although you can choose to top up the wages or not, and will have to pay the wages initially until you are reimbursed by the government, this is a great way to keep staff on the payroll, without cost to you, ready for when you return to being operational. This will be backdated to 1 March 2020 and will continue for at least three months.
  • Forfeiture moratorium: helping to prevent eviction of businesses, those who rent or lease their building will be protected from landlords repossessing the building because of rent non-payment. If your landlord isn’t already providing a rent holiday (which you can still seek to negotiate with them), then this is a great back-up. Naturally, it doesn’t get rid of the rent problem, it merely postpones it, but you’ll then be free to negotiate when you repay your rent shortfall and have time to sort this once you are back trading.
  • Postponing VAT payments: VAT payments can be deferred meaning businesses will not have to make a VAT payment until June 2020. However, the VAT will still be due and must be settled up by the end of the 2020-21 tax year.
  • Sick pay refunds: Any business with less than 250 employees will have statutory sick pay refunded for anyone taking sick leave or self-isolating.
  • Business grants: Any business that pays rates (or has a rateable value with rate relief) will be eligible for a grant of up to £30,000 depending on the size of business. This will be applied automatically.
  • Business rates relief: Any hospitality business with a rateable value of up to £51,000 will be exempt from paying rates for the next twelve months.
  • Takeaway legislation: takeaway legislation has been relaxed to allow pubs and restaurants to operate as a hot food takeaway. This will not necessarily apply to a hotel unless you are operating a separate branded restaurant.

This is as good news as we’re going to get at the moment in what is an unprecedented incident, but what happens if all of this is not enough? What other options are there aside from filing for insolvency? Well, the government is also providing £330bn for state-backed loan support, as part of the Business Interruption Loan Scheme, which will help lenders to provide loans, overdrafts, invoice finance and asset finance, with 80% backing from the government. You / your business will remain 100% liable for the debt, and you will still need to provide a personal guarantee in most cases, but the government will pay interest and fees for up to 12 months and the 80% backing they are giving lenders may help ensure that a ‘no’ credit decision becomes a ‘yes’.

I’ve been speaking to former banker Steve Murcer about how businesses can help ensure they are supported by their bank and he had some great advice. Steve comments “Everyone is in this together and banks are supporting customers to keep businesses trading, ready for when things return to normal. The very very important thing to note is that the same pressure your business is under, the banks are under too. They are grappling with home working, dealing with legislation and guidance that’s changing almost daily, coping with increased staff sickness, and have higher work volumes than ever. My core advice is to apply for help as early as possible and ensure you have done absolutely everything in your power to make the bank’s job as easy as possible! You’ll get an answer much faster and are more likely to get help when you need it.”

Here’s Steve’s Top Tips for getting financial support:

With unprecedented levels of financial support, banks are working exceptionally hard to support their customers, but unlike other sectors the nature of the work they do means it is difficult to employ emergency relief and additional staff to help with the unprecedented levels of demand from both businesses and individuals. You can make their job as easy as possible by:

  • Applying as early as possible: get yourself ahead and make sure you know how much you need and when by. Get your application in as early as possible to maximise the likelihood you’ll get help in time. This will also help you to manage the bank by giving them a clear deadline.
  • Researching exactly what support you need: There’s plenty of advice and guidance online, on the bank’s website and in business magazines that will help you to at least understand the options. Your questions to the bank can then be much more specific, or you can get on with your application straightaway.
  • Completing your application as comprehensively as possible: applications are often delayed because banks have to ask for more information, either because someone has ignored the question, forgotten to attach supporting evidence, given very basic answers, or just not thought things through. The more time a bank spends chasing for information or asking additional questions, and the less information you give them, the longer it takes for them to complete their assessment. My advice is to check and check again. Every bank is different, but they’ll likely want to see:
    • A copy of your latest annual accounts plus any more recent management accounts.
    • A list of your debtors and creditors – who you owe money to and who owes money.
    • A best and worst case cash flow forecast; best case the business will be trading within three months and worst case not for six months – with a commentary as to how you arrived at these figures.
    • Lastly some indication of when you will need support so they can prioritise cases.

It really is essential that you make things as easy as possible for them to maximise your chances of getting the support you need!

One final point on the finances is that it’s always best to avoid borrowing money unless you really really have to. First job is to speak to your creditors, landlords and pending suppliers and see what can be renegotiated or delayed and what payment plans etc. can be put in place. If you then really have to borrow, you’ll be able to prove you’ve taken all the possible steps, which will help stand you in good stead. 

What else do you need to be thinking about?

There’s plenty that you can be looking at, but one essential top tip I saw the other day is to go through your insurance policy with a fine tooth comb. Very few, if any, businesses will be covered for what has already happened, but you need to make sure you are protected for what is to come. For example, many business premises are not covered if their building is unmanned / unoccupied for a period of more than 30 days. During normal business operations this should be fine, but it’s possible your insurance will end up invalidated because you’ve been forced to close down. My advice is go through it in detail, think about the business risk and then contact your insurer to ask for their help in maintaining your cover!

Quality in Tourism assess thousands of accommodation providers globally each year. To find out more about their assessments, gradings and the future of registration please visit www.qualityintourism.com.

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