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Funding for a hotel industry in crisis
TL:DR The hotel industry is in crisis. Covid and lockdown mean that travellers are not travelling and guest numbers have fallen to almost nothing, and the latest quarantine rules are making summer holidays in 2021 even less likely to happen. At Rangewell, we have solutions which can help - and specialists who can put those solutions to work to provide a lifeline for your hotel business. The world-wide disruption caused by the COVID-19 pandemic has created a very real crisis for the hotel industry. Although there was a glimmer of hope as the first lockdown was gradually eased in the second half of last year, the return of the disease with increased infection rates has meant that there are simply no guests to welcome. A very small number of business travellers may still need rooms, but with no tourists - and no end to the crisis in sight - the future for the hotel industry is looking challenging. According to the latest government regulations to combat the spread of Covid, almost all hotels, hostels, guest houses and campsites must stay closed at least until the current lockdown emergency is over. Of course, there is hope for the future. The vaccines now being administered could spell the end of the coronavirus - but their effect will not be felt for months - and it is already looking as though 2021 will see little in the way of tourist business, even if the recovery has begun. It is clear that the hotel industry is now in crisis and that it will be some time before it returns to business as usual - and during that time, the financial challenges will be growing. What are the challenges? Hotel owners and their financial backers have had to look hard at the impact on the industry, their businesses and their funding arrangements. At Rangewell, as experts in business funding and with a specialist teaming working to find financial solutions for the hospitality industry, we look at exactly what the challenge may be - and what solution can be available. “The simple fact is that we have no guests coming in - and that means we have no income coming in either. Usually, January and February tend to be slow, but we should be looking back on a lucrative Christmas period, with everything from works parties and family get-togethers to people just wanting to get away for a break. This year, we had none of that to look back on, and bookings for the next month are non-existent.” Hotel owners need to come up with new strategies including reaching out to lenders, extending the term of any existing loans and requesting interest payment holidays to ease cashflow concerns. At Rangewell we know that many hotel owners have done what they can to weather the Covid storm. Putting staff on furlough is one way of cutting costs - but dealing with existing finance commitments is a major cost, and together with utility bills and vital maintenance mean that there is still a steady drain on any reserves that they may have. What can you do? Have an extended cash flow forecast for the next six months. Include downside scenarios to understand critical cash points and any breaches of lending covenants. Manage your payments to suppliers. Minimise all discretionary operational and capital expenditure. Postpone maintenance and other capital expenditure where possible. Put in place an advanced revenue management system and pricing models to respond to market developments quickly. Assess the equity or debt funding sources available. Be transparent towards existing lenders and involve them in the mitigating procedures and continuity plans. Apply for the tax refunds and other financial relief measures. Looking for solutions to help your hotel through the crisis? Contact our team today for ways to help your business survive. The biggest problem may be providing working capital. Even where hotels are closed, there will still be substantial costs to cover ensure that security and health and safety standards are maintained. For hotel owners, one of the key questions will be how to fund the key working capital requirements of the business at a time when income has completely dried up. The Coronavirus Business Interruption Loan Scheme (CBILS) may be able to provide some support. It is a government-sponsored scheme which can deliver loans of up to £5million from high street banks which will be interest-free for the first year, and have recently been extended to repayment terms of up to 10 years with nothing to repay for the first 12 months. The UK Government will provide the lenders with a guarantee of 80% of the amount of each CBIL loan. For businesses with a higher turnover the Coronavirus Large Business Interruption Loan Scheme can allow borrowing of up to £25m. The government is committed to supporting businesses through the lockdown, and these loans should be a powerful tool to help businesses survive. However, these are commercial loans and lenders are required to carry out full underwriting process on loan applications and ensure that hotel owners satisfy the requirements of the scheme. In practice, many hotel owners have found the CBILS scheme difficult to access. Initially, at least, those lenders who offer the scheme were inundated with requests for funding and had to process those applications with their entire team working remotely, whilst also having to deal with requests for covenant waivers and hotel closures on their existing loan portfolio. However, although the government is underwriting CBILS, many lenders will not advance funds under the scheme to the hospitality sector. Why will lenders not lend? “Our bank manager wanted to be helpful, but when we saw him, he looked at our figures, and said that his hands were tied, and he was sorry, but he could not help us.” The problem seems to be that the lenders have become reluctant to lend to many sectors because of the uncertainties of Covid. They base their lending decisions on risks, and with no sure end in sight for the crisis, they see that some sectors have a future that is at best unpredictable - and which could be financially unsustainable. Some lenders believe that the hospitality industry - and particularly hotels of all sizes - are particularly vulnerable. Some, we have found, have placed blanket bans on lending to the sector, and even with government support via CBILS and the smaller and more agile Bounce Back Loan scheme, they cannot offer the financial support that is so desperately needed. In fact, there is acceptance in the hotel lending community that hotel owners will breach the financial covenants in loan agreements. Some lenders have already adopted a flexible approach and waived financial covenants and provided repayment holidays for an initial period until hotels re-establish trade. But new lending may be particularly difficult to secure. Despite the doom and gloom from some lenders, business sector analysts, Knight Frank, have estimated that the UK hotel will rebound strongly once the economy recovers. It anticipates a V-shaped, stepped recovery with occupancy growth stronger during the initial phase of recovery and rebound in revenue per available room to fully recover once travel restrictions are eased and long-haul inbound visitors return. It means a growing financial crisis for the hotel industry. Why Rangewell? At Rangewell, we are working to find solutions for hotels that have run into problems because of the lockdown. We have a specialist team with expert knowledge of the sector, and we know lenders that may still be prepared to advance funds. Unlike most business funding services, we can search the entire lending market to find funding for our clients. Our service is personal. We assign a finance expert to work with everyone who approaches us, who can discuss needs, and often, suggest unexpected ways to offer funding solutions. Then, we can use some sophisticated software to identify the most appropriate sources of funding for each case. Our Rapid Algorithmic Matching Platform (RAMP) technology can quickly identify a list of lenders which might be willing to provide finance to the borrower, based on our understanding of the scale of the needs and the amounts required. The size of the loan required, the sector and the credit status of each client all influence which lenders who are most likely to be receptive to an application. By automating the process, we can search the entire lending market in seconds. Our fintech platform system can also generate a digital fact-find, which means we can sense-check proposals quickly and efficiently. Once we have our shortlist of appropriate lenders, we can approach our contacts within those banks and other financial providers. Armed with data and documentation updated in real-time, we can support lenders throughout the underwriting and due diligence process. Because of this, we can accelerate the process of completing and drawing down the loan. It not only means that we can find lenders prepared to advance funds when others cannot, but it also ensures we can streamline the application process - allowing the funds to be available for drawdown in the shortest possible time. Rangewell’s APIs into Companies House and the Credit Agencies, as well as its automated fact-find technology, provides clear insight into each client and their requirements. We are independent and we know the entire lending market. That means we can take a view that will put your interests first - and if you have not been successful because of your bank’s lending policies, we will work to find one that is more sympathetic. Ready to find the answers to your funding needs? To find out more call the Rangewell Covid crisis funding helpline on 020 3318 2613 or email [email protected] Talk to Rangewell – the business finance experts
BREXIT: what it means for SMEs
The United Kingdom voted to leave the European Union on 23rd June 2016 and left on 1st February 2020. Between February and December 2020 the UK was in a transition period under the terms of the Withdrawal Agreement. This transition period ends on 1st January 2021 and the future relationship between the United Kingdom and the European Union will be conducted under the terms of a new deal -The Trade and Cooperation Agreement. This is your overview of what is in this Brexit deal. Rangewell are business finance experts who work with UK SMEs and their advisors to help them find, compare and apply for business finance. We have comprehensively and independently mapped over 300 business finance lenders and 23,000 business finance products in the UK. And just like with business finance, we hope to bring all of the information in the Trade and Cooperation Agreement into one helpful overview with insight into how the two sides compromised to reach this agreement. TRADE IN GOODS Summary Zero-for-zero tariff argument. This means if you buy or sell goods to the EU, there won’t be a new, additional charge added in January. A number of situations in the agreement to turn off zero tariffs and a few clues which will see them progressively introduced. New ‘Rules of Origin’ for exporters on the components and/or materials in products - could be an extra charge if a component is made outside the UK or EU. The UK and EU will become two separate regulatory and legal areas. This means that all there will be different regulations and rules on products. Be prepared for paperwork when exporting to the EU which may ask for details of the origins on all of the components used in a product. All goods imported into the EU from the UK will be subject to regulatory checks. Prepare for slight delays on goods being shipped when the system is first introduced. If you already export to the EU, you may be eligible for “trusted trader” status. If a bottleneck emerges in trade (delays at Dover for instance), then the UK and the EU are able to quickly amend rules for customs processes. Product standards and technical regulations based on the same international references. This includes the continued use of self-certification of conformity by the manufacturer where it is currently applied in both the EU and the UK. In 2019, the EU was responsible for 52% of total imports into the UK, and exports from the UK to the EU tallied at 43%. With that being said, services accounted for 42% of the UK’s total exports to the EU. We will detail the overview of services further down the article. Wales, followed by Northern Ireland and the North East of England had the highest percentage of goods being exported to the EU. Northern Ireland, followed by the East of England, had the highest proportion of goods imported from the EU. The Trade and Cooperation Agreement sets out that the UK and the EU will be in a free trade agreement with a zero-for-zero tariff argument. This means if you buy or sell goods into the EU, there won’t be a new, additional charge added in January. The EU stated that this is the most ambitious commitment towards liberalising market access for goods ever to feature in an EU free trade agreement. So this means there will be zero-tariffs and zero-quotas on all goods from day one. If the UK did not have this agreement and left on World Trade Organization terms (No Deal), products like Welsh lamb would have been subject to a 50% tariff, Somerset beef an 87% tariff, Sunderland cars 10% tariffs and Leicester’s textiles would have been subject to tariffs of up to 12%. However, be warned, this agreement is not a straightforward wholesale end of tariffs. It is important to know there are a number of situations in the agreement to turn off zero tariffs and a few clues which will see them progressively introduced. To help to understand why and how new charges might emerge, it is useful to understand the positions taken during the negotiations and how they came to the remedies in the reached compromises. On one side of negotiations, you had the UK who wanted to use this agreement to maximise the benefits of being outside of the EU. While on the other side of the table you had the EU, who did not want to grant the UK any special access to their market as that would mean putting members of the EU at a disadvantage. For example, being outside of the UK means the UK is free to strike a free trade agreement with an East Asian nation like South Korea; who produces electric car batteries cheaper than they do in the EU. The UK could then build an electric car with these Korean batteries in the UK. The UK would then hope to sell the cars inside of the EU in places like Poland or Cyprus. The EU is concerned with the UK doing this, as it would undercut and put EU car manufacturers at a disadvantage due to the fact the UK would be able to build cars cheaper. To remedy this in the agreement, the EU pushed for tariffs on cars. The compromise resulted in a zero tariff on cars made in the UK from January 2021 but tariffs will be phased in over six years on those cars which are built with parts from outside of the EU. This agreement is full of caveats like this. The story of the negotiations is one of the UK trying to take advantage of their global position and the EU ensuring this does not undercut goods made in the EU zone. The outcome is zero tariffs for British goods but protection for the EU if the UK gets too much of an advantage over what can be done from within the EU itself. If you sell goods to the EU, you will have to understand this ‘Rules of Origin’ of all the components or materials in your products, as there could be an extra charge if a component is made outside the UK or EU. Importantly, this doesn’t just mean the origin of materials used but also which country the processing of the components took place. Be prepared for paperwork when exporting to the EU which may ask for details of the origins on all of the components used in a product. The other area in which the UK sought to take advantage and the EU wanted to mitigate this is on the goods which the UK might import from those nations the EU does not have a free trade arrangement with, like Australia or South Africa. The EU are worried that the UK would become a back door for these goods to come into the EU. This could mean cheaper goods or goods which undermine a protected industry, or goods which don’t meet EU standards. This means that, from January, all goods imported into the EU from the UK will be subject to regulatory checks. This is to ensure that goods - like Australia or South Africa wine for example - do not sneak into the EU without the necessary tariffs which currently protect French wine producers. So even with zero-tariffs and customs and regulatory cooperation, all products traded between the UK and the EU will be subject to regulatory compliance checks from the 1st of January. Remember, the UK and EU will become two separate regulatory and legal areas. This means that all there will be different regulations and rules on products. What could this mean to UK businesses? Simply put, this could mean slight delays on goods as the system is first introduced. This does not concern trade in goods between the EU and Northern Ireland, as goods entering Northern Ireland from the rest of the UK will need to comply with EU product rules and will be subject to customs checks. If you already export to the EU, you may be eligible for “trusted trader” status. In the treaty, they have agreed to recognise each other's ‘Authorised Economic Operators' programmes, enabling trusted traders that benefit from this status to enjoy certain simplifications with customs authorities. If you are worried about an increase of paperwork and delays in the delivery of goods, you might be pleased to learn that a number of mechanisms were negotiated to reduce administrative burdens for businesses. The deal does not have any specific agreement but if a bottleneck emerges and we see delays at Dover for instance, then the UK and the EU are able to quickly amend rules on ships carrying lorries or how the UK/EU exchange customs information. Both sides have agreed a definition of international standards that identifies the relevant international standard-setting bodies. This included the continued use of self-certification of conformity by the manufacturer where it is currently applied in both the EU and the UK. This will ensure that product standards and technical regulations are based on the same international references and will make compliance rules easier and less costly. DIGITAL TRADE Summary Agreement to stop any unjustified barriers to trade. Commitment to continue an open, secure and trustworthy online environment for businesses. Maintain high standards of personal data protection. No requirement for UK data to be stored or processed within the EU. UK/EU will continue to cooperate alongside other nations at multiple levels to ensure the highest possible protection. The Agreement aims to facilitate digital trade. It wants to stop unjustified barriers and to maintain an open, secure and trustworthy online environment for businesses and consumers alike. The forefront of the agreement is to maintain high standards of personal data protection and, notably, prohibits requirement for UK data to be stored or processed within the EU. Faced with increasing cybersecurity challenges, the UK and the EU will continue to cooperate alongside other nations at multiple levels to ensure the highest possible protection. TRADE IN SERVICES Summary There is a deal for services in the agreement including for financial services. The agreement provides a significant level of cooperation on the trade in services, going far beyond the baseline of the WTO's rules. As of 1st January, UK service suppliers will lose their automatic right to offer services across the EU. Service businesses that operate in the EU may need to establish an entity in the EU to continue to operate. Firms will no longer be able to operate the ‘passporting' concept. In the deal, a non-discrimination clause was agreed in order to ensure that service suppliers or investors from the UK will be treated no less favourably than EU firms within the EU. There is a review clause encouraging the EU and UK to consider whether there are possibilities to improve trade of non-financial services in the future. The actual level of market access for UK firms will depend on the way the service is supplied and whether it is supplied on a cross-border basis. United Kingdom professionals will need to have their qualifications recognised by the relevant Member State to supply those services in the relevant Nations. The agreement foresees a mechanism whereby the UK and the EU may later agree on specific professions to have mutual recognition of certain professional qualifications. Negotiations continue for financial services, with the aim to be finalised by March 2021. They will mainly cover the question over equivalence on financial services. Until the new agreement, the UK's equivalence decisions will be adopted in the UK's interest and the EU will consider equivalence when they are in the EU's interest. Services accounted for 42% of the UK’s exports to the EU. This includes financial services and professional services such as legal, accounting, advertising and engineering. The UK had an overall trade deficit of -£79 billion with the EU but a surplus of £18 billion on trade in services. It is important to note that there is a deal for services in the agreement, which is in contrast to the fake news being shared by some. The agreement provides a significant level of cooperation on the trade in services, going far beyond the baseline of the WTO's rules. All UK service providers to the EU must be aware that as of 1st January, UK service suppliers will lose their automatic right to offer services across the EU. Service businesses that operate in the EU may need to establish an entity in the EU to continue to operate. Firms will no longer be able to operate the ‘passporting' concept, which is that if you are authorised to practice in one member state it enables you to operate throughout the EU. That said, in the deal, a non-discrimination clause was agreed in order to ensure that service suppliers or investors from the UK will be treated no less favourably than EU firms within the EU. This entitles UK practices to receive more favourable treatment than is granted to service suppliers or investors from outside the EU who do not have similar provisions in place. There is a review clause encouraging the EU and UK to consider whether there are possibilities to improve trade in services in the future (financial services are excluded in this clause). The actual level of market access for UK firms will depend on the way the service is supplied and whether it is supplied on a cross-border basis. For example, if the service is purchased over the internet or by a tourist travelling abroad and purchasing services. United Kingdom professionals including doctors, nurses, dental practitioners, pharmacists, veterinary surgeons, lawyers, architects and engineers will need to have their qualifications recognised by the relevant Member State to supply that services in the relevant Nations. This will happen, and in many cases has already happened, between the UK regulators and their European counterparts. The agreement foresees a mechanism whereby the UK and the EU may later agree on specific professions to have mutual recognition of certain professional qualifications. UK lawyers will be allowed to provide legal services relating specifically to the practice of international law and the law of the country where they are authorised under their “home” title in the EU. The Trade and Cooperation Agreement does cover financial services but it is important to note that negotiations continue and that most areas for financial services are covered by WTO rules. The Agreement commits both the UK and the EU to maintain their markets open for each other seeking to supply services. It was also agreed to commit to current standards in the financial services sector and they are applied throughout the UK and EU. The Agreement does not include any elements pertaining to equivalence frameworks for financial services, that is the recognition of each other’s legal requirements for regulating financial services. It is important to note that negotiations for financial services are ongoing. The UK and EU have stated that they aim to have an agreement on the framework for regulatory cooperation on financial services by March 2021. The negotiations will mainly cover the question over equivalence on financial services. This is in regards to how the UK will diverge from EU frameworks and how it will use its supervisory discretion regarding EU firms. Until then, the UK's equivalence decisions will be adopted in the UK's interest and similarly, the EU will consider equivalence when they are in the EU's interest. This is mainly as the UK hopes to secure provisions that would add more stability to the equivalence system. The UK wanted to at least replicate provisions in the EU’s deal with Japan, which foresee consultations and advance warning before equivalence is withdrawn but the EU rejected this out of concern that the UK would make it as hard as possible for the EU to revoke equivalence. PUBLIC SECTOR CONTRACTS Summary UK & EU companies will be able to participate on an equal footing in bids for procurement tenders covered by the agreement. The Agreement further provides for non-discrimination of UK/EU companies for small-value procurement. The agreement contains what the EU describes as some of the most ambitious provisions on public procurement ever entered into by the EU and goes well beyond commitments under the WTO agreement. UK & EU companies will be able to participate on an equal footing in bids for procurement tenders covered by the agreement. The Agreement further provides for non-discrimination of UK/EU companies for small-value procurement. INTELLECTUAL PROPERTY RIGHTS Summary The agreement enhanced standards in copyright. Collective management of rights and rights such as the resale right for visual works, which are not covered by international conventions, are covered. Trade marks, design rights, patents, the protection of trade secrets, plant variety rights and the enforcement of intellectual property rights have enhanced standards. All EU geographical indications already registered in the EU by the end of December 2020 will be protected in the United Kingdom. Future geographical indications the EU may want to protect will have to be agreed with the UK at the time and won’t be automatically applied. The Trade and Cooperation Agreement complements the existing international legal framework on intellectual property rights. In particular, it enhanced standards in copyright. Notably the collective management of rights, and rights such as the resale right for visual works, which are not covered by international conventions and which are particularly important for international artists. Trade marks, design rights, patents (supplementary protection certificates), the protection of trade secrets, plant variety rights and the enforcement of intellectual property rights (including border enforcement) have enhanced standards. All EU geographical indications already registered in the EU by the end of December 2020, such as Champagne, will be protected in the United Kingdom. Future geographical indications the EU may want to protect will have to be agreed with the UK at the time and won’t be automatically applied. NEW RULES FOR EU WORKERS AND TRAVELLING TO THE EU FOR WORK Summary EU/UK nationals will still have short-term visa-free access of up to 90 days within a 180-day period. For longer stays in the EU, you have to follow individual nations’ immigration rules. The UK created the EU Settlement Scheme to continue living in the UK after 30 June 2021. The deadline for applying is 30th June 2021. You must have started living in the UK by 31 December 2020. Intra-corporate transferees who need to work in the EU can continue to do so but the maximum duration of such transfers is now capped at three years. In short, there is nothing new in terms of ‘freedom of movement’. It’s actually not covered in the treaty. It was already agreed though that from 1st January 2021, EU/UK nationals will still have short-term visa-free access of up to 90 days within a 180-day period. If you want to stay in the EU for longer than 90 days, then you have to follow individual nations’ immigration rules. One of the first things to happen after the vote to leave the EU in 2016 by then-Prime Minister, Theresa May, was to say that EU nationals in the UK are welcome. This was repeated by Boris Johnson when he became Prime Minister in 2019. As a result, the UK created the EU Settlement Scheme. EU, EEA or Swiss citizens and their families can apply to the EU Settlement Scheme to continue living in the UK after 30 June 2021. The deadline for applying is 30 June 2021. You must have started living in the UK by 31 December 2020. Theresa May pushed hard for the EU to make a declaration in line with the UK’s Settled Status Scheme. Unfortunately, the EU has not reciprocated. This means that, for UK nationals living in the EU, they will have to apply through their respective countries for residence. If you are going to temporarily live in the EU for business purposes, the UK and the EU have agreed on a broad range of reciprocal commitments. For example, intra-corporate transferees who need to work in the EU can continue to do so but the maximum duration of such transfers is now capped at three years before the transferee has to apply for a more permanent visa. THE LEVEL PLAYING FIELD, STATE AID AND SUBSIDIES Summary Rules on State Aid so British firms do not have an advantage over those in the EU. The EU offered zero tariffs in exchange that the UK did not offer overly-generous subsidies. The level playing field is an EU concept which means, for example, a Belgian steel plant is not at a disadvantage to one in the Netherlands. That is to say, the Dutch government can not grant subsidies to a Dutch steel plant as that would give them an advantage over the Belgian plant. During the negotiations, the EU was very keen that British firms were not given an advantage of UK State Aid which could see industry leave the EU for the UK. The EU offered zero tariffs in exchange that the UK did not offer overly-generous subsidies. -- Nic Conner is Rangewell’s Research Consultant. Nic worked for Vote Leave during the referendum. Of the six-person UK negotiation team, Nic has known and worked closely with four of them over the past decade. Prior and after the referendum, Nic has worked in business finance alongside SMEs and their advisors.
Rangewell’s analysis of economic data during the Coronavirus pandemic to assess the future of business lending in the United Kingdom
Summary It is clear from the Office of National Statistics reports that we are seeing a mountain range of economic recovery. When the UK has tight restrictions, business performance dips into canyons of low to no trade. As soon as restrictions are eased, we see a sharp upturn with peaks closer to February levels of business activity. All industries saw a dramatic drop in GDP at the start of the pandemic. Some sectors struggled to return to their February levels, while others saw their output bounce back to their pre-March levels by June. As restrictions came into force throughout the UK at the start of November, the percentage of businesses experiencing a decrease in turnover increased sharply. 50% of businesses experienced a lower turnover to what is normally expected for the beginning of December. By the beginning of December, businesses, on the whole, had a greater belief that they would survive the next three months. This is supported by the fact that the majority of businesses have over six months’ cash reserves. 43% of businesses have high confidence that their business will survive, whilst 36% say they have moderate confidence and 9% say they have low confidence. Only 3% say they have no confidence whatsoever that their business will survive into the first three months of 2021. 5% of businesses have no cash reserves, 4% have less than one month, 22% have between one to three months, 16% have between four and six months and 36% have more than 6 months’ cash reserves. The Government’s fully-guaranteed Coronavirus Business Interruption Loan Schemes have been hugely successful. 31% of all businesses have said they received a government-backed loan during the pandemic. Exuding the Future Fund, by the beginning of December, £68.1bn worth of CBILS were lent to 1.5m British firms. Overview of business performance All industries saw a dramatic drop in GDP at the start of the pandemic. Some sectors struggled to return to their February levels, while others saw their output bounce back to their pre-March levels by June. The GDP data clearly shows the peak and canyons of economic performance, with sharp recovery when restrictions are eased and dips when businesses are legally obliged to close. Monthly output as a proportion of February 2020 output; February 2020 output = 100%. Number of people with at least one positive COVID-19 test result (either lab-reported or lateral flow device), by specimen date. Source: Office for National Statistics, GDP monthly estimate: PHE Weekly Cases data, people tested positive, UK Whole. The ONS turnover data is significant as it is published fortnightly. The turnover estimates seem to be following the same trends as the ONS’ UK monthly GDP estimates. This is despite the fact that fortnightly turnover figures are published much earlier than the official monthly GDP estimates. Using the ONS turnover data we can look ahead of the GDP estimates to conclude that when restrictions came into force throughout by the start of November, the percentage of businesses experiencing a decrease in turnover increased sharply. 50% of businesses experienced a lower turnover to what is normally expected for the beginning of December. The percentage of businesses currently trading has fallen to the levels seen in the period of July to August, at 82%. Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) Business confidence and cash reserves going into 2021 43% of businesses have high confidence that their business will survive, whilst 36% say they have moderate confidence and 9% say they have low confidence. Only 3% say they have no confidence whatsoever that their business will survive into the first three months of 2021. Real Estate has the greatest confidence, with 68% of firms in the sector reporting they are highly confident their respective businesses will survive the first quarter of 2021. Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) The ONS say that 5% of businesses have no cash reserves, while 4% have less than one month, 22% have between one to three months, 16% have between four and six months and 36% have more than 6 months’ cash reserves. Manufacturing has the highest level of cash reserves, with 42% reporting reserves will last over 6 months, while hospitality reports that 8% of firms have no cash reserves whatsoever. Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) Overview of the government’s fully-guaranteed Coronavirus Business Interruption Loan Schemes 31% of all businesses told the ONS they have received a government-backed loan during the pandemic. Hospitality report being the largest recipients of CBILS, whilst the arts report to being the least. This could be for the fact that The Arts and entertainment is one of the sectors to benefit from Grant Funding. Source: Office for National Statistics, Business Impact of COVID-19 Survey (BICS) Excluding the Future Fund, by the beginning of December, £68.1bn worth of CBILS loans had been lent to 1.5m British firms. The most successful program has been the Bounce Back Loan Scheme, accounting for 93% of all Government-backed lending. Of those who received a Bounce Back Loan, 4% have successfully gained a top-up. Source: British Busines Bank, Covid-19 Loan Schemes
Case study: Funding to buy a second accountancy firm
TL:DR Getting many types of business funding is proving more difficult in the wake of Covid. When that funding is required to provide the cash for an ambitious business purchase, the challenges are made much more severe - especially if the business looking for funding was experiencing a downturn even before the crisis hit. At Rangewell, we recently arranged funding to allow an accountant to buy another business - and overcame the challenges caused by high gearing to secure funding at a competitive rate. There are three factors that make this type of funding more particularly challenging: Lenders are concerned about the ongoing impact of Covid on the economy and may have tightened their lending rules Lenders are always reluctant to provide funding when they believe the applicant is operating a business with problems Government help for businesses during the Covid crisis can be generous - but CBILS and Bounce Back Loans are explicitly ruled out for businesses with existing trading difficulties At Rangewell, we were recently approached by a client running an accountancy practice which had their business recovery plans severely disrupted by an inability to secure the funding they needed. Buying an accountancy practice Acquisition of a competitor is one of the main routes for developing an accountancy practice. Although there can be no guarantee of any kind that the clients of the business being purchase will stay with the new practice, it can allow for rapid growth in the scale of the practice doing the purchase. The purchase of the goodwill alone, rather than premises or other assets, is the norm in this sector. The business was successful but had reduced the turnover in recent years because of the declining health of the previous owner. The new owner had taken over the practice, understanding that it had declined, but was starting to put it back onto a growth course. “The practice had lost some key clients, but we were still profitable and I was confident that I would be able to turn the business around. But I needed some new business quickly. The simplest way to do that would be to buy the goodwill of an existing firm - and I found one that would be ideal.” The retiring accountant had agreed that a sum of £150,000 would be appropriate for the goodwill built up in his practice. A professional accountant with a practice of their own should be able to arrange a loan of this scale to take over a business without difficulty. Banks and other lenders will see the profession as a good business risk and be happy to offer funding on attractive terms. However, the practice was already close to its credit limit with its bank and, with the problems the broader economy had been experiencing, the bank would not provide any further funding. “I wanted to put the business back on a professional footing. It was frustrating that the bank could not help.” The accountant had called on us at Rangewell to provide funding for clients - so it seemed logical to call on our expertise to find a solution to his own needs. We looked at the problems and saw that the influx of new business would be valuable but the combination of Covid, the downturn in the existing business and the fact that it had reached the credit limit with their existing bank was causing problems. “I had taken on a business in a downturn - but I could not raise the cash I needed to start it heading back up.” Are you struggling to find funding solutions for your business? For personalised support and innovative solutions, contact the Rangewell Funding Team today The funding solution Rangewell arranged As the owners of an accountancy practice that was established and had been able to show a record of profits in the past, it would usually be simple to arrange funding. Banks and other lenders will usually see accountants as ‘safe’ choices for funding. However, the fact that the practice was already highly geared meant that it was impossible to secure additional funding for our client. He had used all available credit to buy the business and to keep it afloat. We knew that in these circumstances it would be possible to arrange funding for a specialist in distressed lending - which could provide funds at a high rate of interest. We discussed this with the client and agreed that this would be possible - but that the high cost of this type of credit would put the business itself at risk. The client had become a high-risk proposition for lenders because of the amount of credit that was already being used. The problem was that their available credit was all in use, and that was obvious to new lenders, who saw the business as being in distress. However, we saw that the solution would be to provide additional credit for the short term, which would improve the trading position of the business - and so make it suitable for the large-scale loan required for the business purchase. We arranged two funding streams - one for £20,000 as a Revolving Credit arrangement, and an additional £30,000 facility using business credit cards. This provided an additional £50,000 worth of credit that the accountant could call on as required. But it would have another even more important effect. With additional credit to call on, the practice was no longer trading at a disadvantage. It would mean that much lower rates for the business purchase loan could be negotiated. Together the two credit lines would be more than enough to give the incoming owner a cash reserve to deal with any problems with cashflow while he continued his work of revitalising the business - and provide evidence of sufficient credit to enable a lender to provide the funds required for the practice purchase. How can we help you? If you are faced with a funding problem, and especially if your bank cannot help provide the funds you need, the answer is to call us at Rangewell. We are experts in all aspect of business funding and we can use our knowledge to find funding solutions - when going direct to lenders will only mean problems. To find out more, call Rangewell for an informal discussion on 020 3318 2613 or email [email protected]
CBILS Case study: Funding for a Furniture Manufacturer
TL:DR When a furniture manufacturer found that he had run into cash flow problems, he discovered that they were made worse because of his existing lending commitments. Despite his exposure to his existing debt, we found a way to provide £250,000 with CBILS funding. Urgent update: The government has announced an extension to the deadline for CBILS applications, which will now remain open until the end of January 2021. Don’t miss out on the government-backed funding you must have - call us now. Covid has meant challenges to every business sector. Even those sectors such as manufacturing - where it is impossible to work remotely but entirely possible to work safely by careful process planning - have suffered because, in many cases, their customer base is no longer buying. “Obviously, you can't have people working from home when they need to work on a production line. After a few issues, we found ways for our workforce to socially distance and use PPE, so we should be able to run the production floor as normal. We have a modern factory and setting up perspex barriers around workstations and the like was not too much a problem. We even had the supply problems cracked. We had a few missed deliveries from board suppliers to start with, but that all got sorted out. For a while, it looked like we could carry on with business as usual - but then the orders started getting cancelled.” The business, based on an industrial estate on the outskirts of London, built furniture - mainly for domestic and commercial users, providing a range of tables, chairs, desks and cabinets. With a range of advanced machines, including CAD equipment, they were able to provide both a standard range and custom orders as required, and business was brisk. They had enjoyed a turnover of £1million last year and were looking forward to an even busier year in 2020. “You can make furniture with the old fashioned crafts approach - but you can’t make money doing it. We had invested in the production floor and we have some advanced machines. It gives us a competitive edge when it comes to volume, and to versatility too - if we need a custom design for a large order, we can just get the computer to take care of the design and spec. Our designs are variations on a theme, and our people know how to put it all together.” It seemed to be a winning formula for a profitable business - until the lockdown. Orders were being cancelled as the shops stocking their ranges shut their doors, and refurbishing projects of all sizes were put on hold for the duration of the emergency. A growing flood of orders slowed to a trickle, and both machines and workforce were standing idle. “Of course, we did what we could to cut costs. We furloughed as many of our team as we could and took advantage of the rates and VAT holidays. But I sat down with the accountant and we saw that it was not going to be enough.” The problem was the machines which had given the business its competitive edge. They had been a major investment, and they paid for themselves when they were working - but now that they were standing idle, the repayments on the funding required to buy them was more than the business could afford. Together with the cost of the factory premises, which were leased, the business was left with a substantial shortfall in cash. The business did what it could to reduce outgoings but there were substantial overheads to pay, with premises to pay for and a wide variety of equipment which needed finance agreements serviced. Simply making payments on the existing debt was fast becoming a problem when the volume of business started to decline with Covid. The business saw that the government's Coronavirus Business Interruption Loan Scheme - or CBILS - could be a cost-effective solution to help provide the funds it needed to stay afloat. About CBILS CBILS is a government-backed scheme which was set up to provide financial support to smaller businesses across the UK that were, and still are, losing revenue and seeing their cashflow disrupted as a result of the COVID-19 outbreak. The scheme can provide loans of up to £5million, crucially, with nothing to repay for the first 12 months. It can be the ideal solution for businesses of all kinds that find that their orders have been put on hold because of the lockdown. However, there was a problem. CBILS is provided by commercial lenders, and although the government scheme will reduce the risk of lending, it cannot altogether remove it. Lenders will, therefore, lend under their own lending criteria. When the business owner approached his existing lender for help, he found they would not provide additional funds - even under CBILS. What was the problem? Their existing lenders were a Peer-to-peer provider. Peer-to-peer, or P2P lending, is an innovative practice that can change the playing field when it comes to raising money. P2P allows individuals or businesses to lend money to other individuals and businesses through an online service. P2P websites work like marketplaces, bringing together people or businesses that want to lend money with those that want a loan. By providing an alternative to banks, it offers scope for funding outside the cast-iron rules banks are forced to set. Although costs for borrowing can be higher than those provided by mainstream banks, a P2P lender may be able to offer a loan when the more established banks are unable to. With many banks reluctant to provide funding for start-up and newer businesses, an increasing number of business owners turn to P2P lenders for the funding they need. Costs may be a little higher than a tier one, or high-street bank, but the ability to access funding essential to turn a business idea into a business makes it more than worthwhile to pay a premium - at least until the business is fully established. In the case of the manufacturer, the large investment in production equipment had been mainly funded by Asset Finance provided by a major P2P lender. “They had been generous when we had set up the business - I hoped they would be again.” He had reasons to be optimistic. Some of the larger P2P providers have arranged to offer funding under CBILs, using the government’s guarantee to underwrite their decisions, although they will continue to work according to their established business model. However, the owner was disappointed by the reaction of the lender. “They looked at our figures and explained that they could not provide us with any more cash. We had already reached their lending limits under the new conditions forced on them by Covid.” The lender wanted to be helpful, but their hands were tied by their own lending rules. The business already had substantial borrowing and under their procedures, there was little margin for more. Dealing with a crisis With payments due on his existing loans, the lender could see no way to advance additional funds. Their existing lending was secured on the equipment itself, but with no indication of when the Covid crisis would be over and the business could get back to work and into profit, there was no guarantee that any additional funding could be repaid. The business owner turned to Rangewell for a solution to his funding crisis. We looked at the problems they were facing and saw that getting a CBILS loan was going to be key to the survival of the business. We understood the problem was the existing debts which, as a relatively new business, were high compared to the £1million turnover the business had enjoyed last year. Most lenders took the view that the business would be unable to meet their lending requirements - which had been made more exacting since the Covid emergency. We saw the solution could be provided by re-looking at the business and providing a restructuring of the current debts. By reorganising the Asset Finance arrangements, we were able to reduce the outgoings, reducing our clients existing commitments and freeing up cash to allow him to commit to a repayment plan for additional funds. We then approached a lender who specialises in lending for more challenging business situations. By making use of the government's underwriting guarantee under CBILS, the lender was able to provide a loan of £250,000. The interest rate of 7% was high - but as a lifeline for the business, it was easy for our client to see why it was necessary. This kind of sum can usually be arranged under CBILS without a personal guarantee. However, in this case, the questions about the viability of the business prompted the lender to stipulate some conditions - but crucially they would be prepared to provide the funds required. By making use of the government's guarantee under CBILS, the lender was able to provide the loan with 5 years to repay - after the initial 12 month repayment holiday. “£250,000 is the help we need. We can stay in business until the customers start buying furniture again. We know that could be months away, but thanks to CBILS I don’t need to pay anything for the finance for a whole year.” The solution we provided We have found that many smaller businesses will need help, not simply to get through the crisis but to access the funding the government has promised. As the UK leaders in business funding for the SME sector, we are in the ideal position to help. “Rangewell’s expertise helped me at every stage. Restructuring our finances, which lender to approach, how to complete the application, what supporting documents I should need - and made sure I got the funds I needed. CBILS is ideal for us. It makes borrowing a lifeline affordable - especially as there are no repayments to make in the first year.” The funding Rangewell secured £250,000 over 60 months 7 % interest Repayment holiday for the first 12 months Ready to find the answers to your funding needs? Contact the Rangewell Funding Hotline on 020 3318 2613 Rangewell finds the financial solutions that your business needs Whatever business sector you work in, Covid will mean new financial challenges. The Rangewell Covid Crisis service is designed to provide the right solution. Business Funding Experts will be able to discuss your options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business conditions are presenting you with. We are independent and we know the entire lending market. That means we take a view that puts your interests first - and if you have not been successful because of your bank’s lending policies, we will work to find one that is more sympathetic. At Rangewell we work to find the financial solutions you need - not excuses Call us. We can help you see if a CBILS or Bounce Back Loan might provide the answers you need and streamline your application - or whether there is another form of funding which could provide a better answer for your particular circumstances. Then we will search the entire lending market to find the most appropriate lender and to make the application for the loan you need. Calling us could help you save your business. To find out more call the Rangewell Covid Crisis funding helpline on 020 3318 2613 or email [email protected] Keeping your business afloat with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit – no problem Repayments geared to your turnover Expertise in funding for your sector Bounceback and CBILS expertise Talk to Rangewell – the business finance experts
CBILS Success Story: A second loan for a travel agent
TL:DR A second CBILS loan Urgent update: The government has announced an extension to the deadline for CBILS applications, which will now remain open until January 31st. Don’t miss out on the government-backed funding you must have - call us now. People are currently unable to freely travel abroad on holiday and, as a result, some of the big holiday companies have gone to the wall - and many travel agents look to be in danger of following them. Most travel agents are now online operations, which means they have no problem continuing trading, with many set up with their sales agents working from home, dealing with calls and using the systems remotely. It could be business as usual - if there was any business to do. We were recently approached by the owner of an independent travel agent business who has a £13 million turnover in a good year - but who had found that 2020 was nothing short of a disaster. “Because most of the business is online these days we could still trade. But it soon became obvious that people were just not going abroad this year. A few were still travelling on business, and people who had family overseas might still need to go - but the bread and butter of our business had vanished.” . There was still some business coming in from loyal customers; the owner had built up a reputation with expats heading back to see family, but or, the business was suffering. With rent and other overheads, profits were small at around 10% of turnover and there was little cash in the bank to ride out the downturn. But the owner saw that there could be hope for her travel business - if she could take advantage of the government’s support with funding to provide the cash to stay afloat. The government’s key funding initiative is CBILS. The scheme can provide loans of up to £5million, crucially, with nothing to repay for the first 12 months.. It can be the ideal solution for businesses of all kinds that find that their orders have been put on hold because of the lockdown. However, there was a problem. CBILS is provided by commercial lenders, and although the government scheme will reduce the risk of lending, it cannot altogether remove it. Lenders will therefore lend under their own lending criteria. When the business owner approached his bank for help he found they would not provide additional funds - even under CBILS - because they had already done so. The business had already applied for CBILS funding on £250,000 back in march, which they believed would be enough to carry the company through several months of lockdown. The loan had been provided, but with lockdown continuing for many months after the initial projected period, and the travel industry in chaos. The bank was wary of making a second loan, on the basis that the travel industry as a whole was not achieving the recovery expected. The bank had looked at its loan book on a sector by sector basis, and had taken the decision to refuse any further lending to businesses in it. The business owner was left with a steadily shrinking reserve of cash, and debts that just could not be avoided. How Rangewell found a solution The owner approached us at Rangewell, and asked for help. Funding - fast CBILS loan £250,000 at 8.5%, with 12 months initial repayment freeze The client had the funding he needed for the project - with nothing to pay back for 12 months “I had been worried that I would have to close down altogether when the Covid crisis kept on. Without the holiday trade, we simply were not in a position to make money. Rangewell explained that they had contacts who could provide the kind of funding we needed now to deal with the way the epidemic was developing - I was only sorry that I hadn’t gone to Rangewell sooner” Ready to find the answers to your funding needs? Contact the Rangewell funding hotline on 020 3318 2613 Rangewell finds the financial solutions that your business needs The Rangewell service is easy to use - and lets you talk to a funding expert to get a solution that is planned around your business needs. Just call us and one of our Business Funding Experts will be able to discuss the options, and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present. We can help you see if a CBILS or bounceback loan might provide the answers you need - or whether there is another form of funding which could provide a better answer for your particular circumstances. It can be the simplest way to find the lifeline you need for your business. To find out more call Rangewell for an informal discussion on 020 3318 2613 or email [email protected] Keeping your travel business going places with help from Rangewell Individual arrangements tailored to your circumstances Adverse Credit – no problem Repayments geared to your turnover Expertise in funding for your sector Bounceback and CBILS expertise Talk to Rangewell – the business finance experts