Gambit’s dedicated Human Capital team is ready to support clients with expert sector support and advice at this critical time. In this summary, we have outlined the key considerations that corporates in the sector should review and action to ensure that they effectively manage this period of heightened market uncertainty.
Use of Government Loan Schemes
Vital government support has been made available to UK based businesses with annual turnover of up to £45m via the Coronavirus Business Interruption Loan Scheme (“CBILS”). Key aspects of the scheme include:
- 80% government backed guarantee to funders
- Facility amount available up to £5m over a max term of six years
- The scheme includes loans, overdrafts, invoice finance and asset finance facilities
- Interest & fees are paid by the government for the first twelve months with no early repayment penalties
- Support under the scheme is available from over 40+ accredited lenders
- Capital repayment holidays can be initiated for those struggling with repayments
- The Bank of England has also launched the separate COVID-19 Corporate Financing Facility for larger organisations that make a material contribution to the UK economy. Further details to follow.
- Lenders will assess requests on a case by case basis, with no obligation to approve
- The business should present a sound borrowing proposal that proves the underlying viability of the business if the current pandemic were not present
- Borrowers should seek to provide supporting forecasts with built-in stress tests
- Lenders will seek assurance that appropriate mitigating actions against COVID-19 are being taken
- The additional liquidity should be used to trade out of any short to medium term difficulty
Job Retention Scheme
Corporates should assess the government’s Job Retention Scheme to obtain a detailed understanding of exactly how this will work for relevant employees. Key aspects of the scheme include:
- Support for employees who are at risk of redundancy due to COVID-19
- At least 80% of the gross salary of workers at risk is covered
- Payments are capped at £2,500 per month at present
- Employers can submit relevant information to HMRC who are working to set up the reimbursement system
- The option exists for an employer to ‘top-up’ the 80% subsidy, but it is not mandatory
- Further clarity is required as a ‘furloughed worker’ is not defined in UK employment legislation; in other jurisdictions it is used to refer to an employee who is put on unpaid leave
- Consent of relevant employees will be required unless this is covered in their respective employment contract
- Clarity on what salary will be used as the reference point; it is assumed that this will be basic salary, but this will need to be defined
- Market commentary appears to suggest amounts paid in February payrolls will be used as the reference point
- Clarification around whether PAYE or NIC should be applied
- Clarity around whether those on zero hours contracts and other flexible arrangements should be included
The implementation of the widely debated IR35 changes has been postponed by the UK government and will be reintroduced on 6 April 2021. Further to our update from last week, corporates should be acting to ensure that the effects of this short-term policy departure are managed effectively.
- The delay provides end users and suppliers that have not yet implemented effective mitigation strategies with valuable time
- Exposed corporates should look to streamline their processes and work through the changes, in order to minimise the impact on trading
- Those that have transferred contractors from PSCs to umbrella arrangements will need to give due consideration to whether this can be reversed in a way that minimises the potential for tax avoidance and non-compliance with employment law
- An additional twelve months of guidance may also lead to much needed clarity around the issues such as HMRC’s CEST tool and the review process itself
Revising Financial Forecasts
It is essential that forecasts are updated to reflect the current status of business operations and any restrictions being experienced through:
- Customer / sector specific issues
- Operating capability / capacity
- Employee absences
- Candidate availability
Corporates should include monthly profit and loss and cash flow forecasts and a rolling 13-week cash flow that is revised weekly or when new material developments occur. It is also vitally important to determine the anticipated level of cash headroom and point of minimum cash position and build in sensitivities to look at range of possible outcomes and the impact this has on requirements.
Working Capital and Cash Flow
It is vitally important to implement measures that will improve the working capital cycle/profile of your business. These could include:
- Agreeing special terms with customers
- Increasing the efficiency of your creditor payment policy
- Enquiring about the availability of Time to Pay arrangements with HMRC
Management teams should consider the assumptions around the invoicing of current and future months’ sales and any issues anticipated with collection. For instance, the Human Capital sector is a key beneficiary of invoice discounting facilities, therefore, it is key that a proactive and open dialogue is established with your respective funders to manage your working capital requirements during this critical period.
Corporates should hold proactive conversations with funders to understand the current flexibility around repayment profiles for capital and their ability to defer or reduce interest payments. Proactive communication and effective stakeholder management is key and will ensure that there are ‘no surprises’.
A concise and well thought out COVID-19 plan should be prepared, which succinctly summarises the challenges facing the business, highlights key strategic, financial and commercial actions being taken by management, identifies any shortfall in funding needs and makes a robust case demonstrating the ability to service additional requirements under a range of scenarios.
How Gambit can help?
Gambit’s dedicated Human Capital and Debt Advisory teams are in constant and direct contact with key industry bodies, mainstream funders and alternative finance providers to understand the latest guidance and support available. We are fully up to date with all forms of financial and practical assistance being made available and can tailor your company’s specific circumstances to the most appropriate solution(s) available.
Our advice to clients is to act sooner rather than later in assessing requirements and putting plans in place. Whilst not all details have been made available as to how some of the schemes will operate, it is evident that companies who are fully prepared and “ready to go” will be at a clear advantage.
Our strong advice on CBILS is, given the loans have no arrangement fees or early prepayment fees and are interest free for 12 months, that clients actively look to access this funding for contingency purposes and if the loan proves not to be required repay it after 12 months at very little cost.
In terms of practical help, we can assist management teams and shareholders with the following:
- Co-ordinating the preparation of a robust set of financial projections which reflect:
- Current trading assumptions
- Short-term known changes
- Contingency planning for “what if” scenarios based on key business drivers
- Assessing short and medium-term working capital needs and co-ordinating and stress-testing various scenarios to identify funding gaps and range of outcomes
- Preparation of COVID-19 plans which clearly set out the commercial and financial risks to the business and the mitigating actions taken
- Co-ordinating the preparation of submissions to funders covering the liaison with existing and alternative providers of funding to identify the range of funding solutions available
- Work with management teams and shareholders to evaluate the available options, review and challenge to determine the optimum solution
- Available as a strategic sounding board at all times to the management team and shareholders to identify key commercial issues and sense check strategic responses
If you would like to set up a call to discuss the challenges facing your business, understand the most appropriate funding options available and best practice in presenting your COVID-19 plan to your stakeholders, please contact a member of the team.