Here we are, just one week after the third virus influenced ‘Budget’ in a matter of days and one day after the whole country was ‘instructed’ to go into lock down mode in order to manage the impact of the COVID-19 pandemic. As we all try to keep life and business as normal as possible in these abnormal times there is much to think about.
As we wrote in our article last week, one of the key things for firms and individuals to do at the moment is to keep up to date with events and, in particular, any guidance published by the Government in relation to the pandemic generally and by the FCA relating to financial services matters specifically.
The FCA latest position on the virus can be found here.
Government guidance and assistance for firms
We believe that the Government has sent SMS texts to all mobiles confirming the ‘stay at home’ message and giving links to further information.
In addition, the Government has launched a GOV.UK Coronavirus Information Service on WhatsApp. To use this free service, add 07860 064422 in your mobile phone contacts then message the word “hi” in a WhatsApp message to get started.
The government assistance for firms is detailed here.
At the moment the support available can be summarised as follows:
- a Coronavirus Job Retention Scheme;
- deferring VAT and Income Tax payments;
- a Statutory Sick Pay relief package for SMEs;
- a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England;
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief;
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000;
- the Coronavirus Business Interruption Loan Scheme (CBILS) offering loans of up to £5 million for SMEs through the British Business Bank;
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans;
- the HMRC Time To Pay Scheme;
- A number of other easing of deadlines, e.g. limited companies can apply to Companies House for a three month extension for filing accounts so avoiding late filing fines and easing the many pressures that firms are experiencing currently.
Some of these could clearly be of benefit to firms, particularly the options to defer some tax payments and help with retaining staff that are not currently required to be ‘active duty’. The Sick Pay support could also be beneficial if staff fall ill.
Potential impact of CBILS on capital adequacy requirements
There have been a few calls for the FCA to ease the capital adequacy rules temporarily to reflect the cash flow strain that firms might suffer as a result of the impact of the pandemic. In particular, requests have been made for greater clarity on the impact of a Business Interruption Loan on a firm’s capital adequacy requirement.
The FCA will no doubt respond to these calls in due course. Meantime, the situation remains that any loan is a liability on the firm’s balance sheet and so not available as capital adequacy.
It is reasonable to presume that a firm would only borrow if a) it needs the money for some temporary purpose and b) the firm is confident it can cover the interest and repay the capital in due course. That being the case, a CBILS loan is attractive for a variety of reasons, not least as the interest and terms are likely to be better because the government is standing as guarantor for 80% of it (although the firm is LIABLE for 100% of the loan) and the first six months are interest free.
Full details of CBILS are available here.