The Chancellor and the Scottish Government have introduced a number of measures to support SMEs amid the disruption caused by COVID-19. Although the government has released initial guidance, specific details particularly in relation to the application processes are yet to be fleshed out. We have set out a summary of the initiatives introduced to support SMEs below, namely the Coronavirus Business Interruption Loan Scheme, non-domestic rates reliefs and grants and deferred tax payments, and addressed some of the key questions which businesses are likely to have at this time.
Coronavirus Business Interruption Loan Scheme (“CBILS”)
What is it and how does it work?
CBILS is a temporary initiative that can provide facilities of up to £5 million for smaller businesses across the UK through the British Business Bank’s 40+ accredited lenders. The government will provide lenders with a guarantee of 80% on each facility (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The scheme went live on Monday 23 March and will initially run for six months. It temporarily replaces the Enterprise Finance Guarantee scheme.
Which businesses qualify for it?
The scheme has been introduced to assist primarily small and medium-sized businesses to access bank lending and overdrafts. It is designed to assist SMEs who don’t meet lender’s requirements for a fully commercial loan or other facility, but who are considered viable in the long term.
You are eligible for the scheme if:-
- your business is UK based, with a turnover of no more than £45 million per year
- you have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable for the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty
- your application is for business purposes
- your business generates more than 50% of its turnover from trading activity
- your CBILS-backed facility will be used to support primarily trading in the UK
- you wish to borrow up to a maximum of £5 million
Smaller business from all sectors can apply for the full amount of the facility.
What types of finance are available?
The scheme will support a wide range of business finance facilities, including (but may vary from lender to lender):
- Term loans
- Overdrafts
- Asset finance
- Invoice finance
What are the proposed terms?
Facilities will be available on repayment terms of up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
There is no guarantee fee for businesses but lenders will pay a fee to access the scheme.
The government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so you will therefore benefit from no upfront costs and lower initial repayments. However, please note that fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment.
Lenders will offer finance on normal commercial terms without the need to make use of the scheme, if they are able to do so.
The CBILS guarantee is to the lender and not to your business. You will always remain 100% liable for repayment of the facility supported by CBILS.
Will I need security to get a CBILS-backed loan?
This is at the discretion of the lender. The scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. Primary Residential Property (PRR) cannot be taken as security under the scheme.
What do I need to do to apply?
The scheme is available through the British Business Bank’s 40+ accredited lenders. You can find a list of lenders here.
You should approach the lender in the first instance (not the British Business Bank), ideally by making an application via their website. Decision making is fully delegated to the 40+ accredited CBILS lenders. You may approach other lenders if you are unable to access the finance you need.
British Business Bank has advised that there is likely to be a large demand for facilities once the scheme goes live and asks that you consider the urgency of your need, whether you are looking for regular longer-term finance rather than ‘emergency’ finance, as there may be other businesses with a more urgent need to speak with a lender.
Non-domestic rates reliefs (discounts) and one-off grants
The Scottish Government has made changes to non-domestic rates (business rates) for 2020-21 to help owners of non-domestic properties, including businesses, deal with the impact of COVID-19.
What reliefs are available to help with COVID-19?
All non-domestic properties in Scotland will get a 1.6% rates relief. This relief effectively reverses the change in poundage for 2020-21. You do not need to apply for this relief – it will automatically be applied to your bill by your local council.
Are extra reliefs available?
Yes, retail, hospitality and leisure businesses will get 100% rates relief, provided the property is occupied.
The Scottish Government is currently working with local authorities to make sure this relief is administered in the most effective way. We will provide an update on the application process as soon as it has been announced.
How long are the reliefs available for?
The reliefs will be available from 1 April 2020 to 31 March 2021.
What businesses qualify for a one-off grant?
Retail, hospitality and leisure businesses with a rateable value between £18,000 and up to and including £51,000 will be able to apply for a one-off grant of £25,000.
A one-off grant of £10,000 will also be available to small businesses:
- who are eligible for Small Business Bonus Scheme relief
- who are eligible for Rural relief
- who applied for Nursery relief or Disabled relief but are eligible for the Small Business Bonus Scheme.
How many grants can I apply for?
You can only apply for one grant, even if you own multiple properties.
What do I need to do to apply for a grant?
The Scottish Government is currently working with Scotland’s local authorities and other stakeholders to agree on a common approach to the application process. We will provide an update on the application process as soon as it has been announced.
What should I do if I am struggling to pay my non-domestic rates bill?
You should contact your local council and ask them about your payment options as soon as possible.
Are these the same as the non-domestic rates reliefs and grant funding measures announced by the Chancellor on 17 March 2020?
No, although they are similar, the business rates reliefs and grant funding measures announced by the Chancellor on 17 March 2020 apply only in England.
Deferred tax payments
VAT deferral
The Government will support businesses by deferring Value Added Tax (VAT) payments for 3 months. The deferral will apply from 20 March 2020 until 30 June 2020. Taxpayers do not need to make a VAT payment during this period. You will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period.
All UK businesses are eligible. The offer is automatic and you do not need to apply.
Income Tax deferral
If you’re self-employed, Income Tax payments due in July 2020 under the self-assessment system will be deferred to January 2021. This is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period.
What if I am struggling to pay outstanding tax liabilities?
HMRC have scaled up their Time to Pay offer to all firms and individuals who are in temporary financial distress as a result of COVID-19 and have outstanding tax liabilities. These arrangements are agreed on a case-by-case basis and you should contact HMRC’s dedicated helpline for more information: 0800 0159 559.
This note is based on information as at 23 March 2020 and will be updated as and when further information is provided.
Insight from Pamela Muir, Corporate,Insolvency, Restructuring Partner and Chris Allan Corporate Partner at Thorntons. For more information contact Pamela or Chris on 03330 430350, alternatively email pmuir@thorntons-law.co.uk or callan@thorntons-law.co.uk
