Following the Chancellor's decision to end the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Job Retention Scheme (CJRS) on 30 September, what can family businesses do after this date?
Businesses have been shielded from the majority of the cost of their employees during the crisis but post September, employers will have to review their business plans and decide if they can afford to keep those workers. This could potentially cause a two big waves of unemployment in the autumn.
Following the waves of unemployment there may be a demand shock which feeds through into the wider economy. The Resolution Foundation think tank found that a quarter of furloughed workers thought they were likely to be laid off. The Office for Budget Responsibility’s most optimistic scenario, indicates that unemployment rate will peak at 9.7% this year, and will not return to pre-crisis levels until 2022. Despite the optimism present in capital markets there is still quite a lot to feel nervous about.
CBILS is designed to help small and medium-sized businesses affected by the coronavirus pandemic. It is a loan not a grant but the government guarantees 80% of the finance to the lender. The CBILS scheme is operated through the British Business Bank and its accredited lenders. Through the scheme companies can access up to £5 million of loans and invoice finance at reasonable rates and the government pays interest and fees for the first 12 months. Terms can be up to three years for invoice and overdrafts and up to six years for loans and asset finance.
Despite initial teething problems, some well knowns inconsistencies and stories of abuse, CBILS has been successful in keeping many otherwise insolvent businesses afloat.
Many businesses in the leisure, hospitality and domestic services sectors who saw their turnover reduce to zero in the spring, would not be here today without the scheme. Participating banks were initially overwhelmed but are now seen as largely supportive.
The CBILS loans come to an end at a period when business problems may only begin to emerge. We believe that cash flow issues will continue to arise for businesses throughout 2020 and may be at their worst from quarter four onwards.
This is the last opportunity to secure a CBILS loan as sources of business finance will be harder to find from October. Crowe can help family and owner-managed businesses to forecast ahead and consider whether to secure CBILS support to see them through these uncertain times.
For more information on the issues discussed in this update or to discuss your business’s circumstances get in touch with your usual Crowe contact.