Ryan Bevington looks at how other sources of capital are dovetailing with the current government support and what part these alternative funding options will play in the post-coronavirus recovery.
The majority of business owners will be well aware of the various business support measures made available to UK businesses by the Government since March 2020 in response to the coronavirus crisis. At the time of writing (and following announcements in the Chancellor’s Summer Statement), this unprecedented range of support has cost the UK taxpayer around £190 billion, according to the Institute of Fiscal Studies. Notably, over 1 million businesses and 9.4 million employees have received payments through the Coronavirus Job Retention Scheme (JRS). Other forms of Government support include the Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loans, the Future Fund, Business Rates Relief, VAT and PAYE deferrals, Business Support Grant Funds and the Self Employment Income Support Scheme.
As we emerge from the UK wide lockdown, many business owners are turning their thoughts from preservation and survival, and towards various challenges such as returning staff to office based working, bringing staff off furlough and reopening businesses which have been closed for an extended period. For many businesses, the outlook will be very different than it was only a few months ago, and for those that have used one of the Government loan or deferral schemes there is the additional consideration of how and when they will repay those debts. Cash flow management will be crucial as they steer through the various calls on cash during the coming months, particularly alongside sources of traditional funding such as bank loans, invoice finance or overdrafts.
The withdrawal of Government support at the same time as businesses are trying to return to more normal trading levels will inevitably provide challenges. Working closely alongside banks and other funders will be imperative during this period, and many business owners will have already engaged with their bank for CBILS or Bounce Back Loan support. Regular communication with other stakeholders and creditors, potentially including HMRC, landlords and suppliers, will also be required to retain their support and confidence.
It is my belief that financial and Government institutions will generally be understanding of the issues facing businesses over the coming months, however there is likely to be less flexibility from other creditors who may be dealing with their own internal challenges. Many of the Government support schemes recognise that there is no short-term fix, with repayment holidays and longer-term convertible loans available to businesses. However, with access to new sources of finance likely to become a priority for some, as the Government support unwinds, it is our expectation that UK banks will remain extremely busy for the foreseeable future with lending requests and providing customer support, which may impact lead times for accessing bank funding. There is therefore some legitimate concern that traditional sources of funding will not be available either quickly enough or in sufficient quantities to “plug the gap” left by the withdrawal of the Government support schemes.
In Maven’s case, we have been working closely with our portfolio of businesses throughout the coronavirus crisis, helping them to manage the issues they are facing, prioritise the aspects which matter most to their operations and in some cases providing financial support. In our experience, equity funding can stand out in periods of economic instability as it is committed “patient” capital, usually without ongoing capital repayment obligations. This longer term investment approach can provide businesses with the headroom to survive and even prosper during slower trading periods. Furthermore, as shareholders ourselves, our interests are aligned with business owners and we take a proactive role in times of crisis to ensure that long term stability and growth remains the focus.
The Government’s support measures have generally worked well thus far, but these initiatives will be withdrawn over time and are unlikely to have fully plugged the loss of income experienced by many businesses. Equity investment and private capital are likely to play an important part in ensuring liquidity for UK companies in what is an unstable economy, especially those with low cash reserves, or who are pre-revenue or pre-profit. Now more than ever business owners need to understand what long term and sustainable capital options are available once the Government support comes to an end, offering the flexibility they require to navigate their way back to normality.