1. What does the package look like?
The Government’s £350bn financial ‘support’ package, which was first outlined by Chancellor Rishi Sunak last week, includes £330bn in loans, and £20bn in other aid. The loans effectively break down into two categories. For small and medium-sized companies there is the Business Interruption Loan (BIL) Scheme. Business that are considered ‘viable’ can apply for a 12-month interest-free loan of up to £5m under the scheme, and 80% of it will be guaranteed to the bank by the Government. Larger companies, meanwhile, are encouraged to apply to the Bank of England's Covid Corporate Financing Facility. The BBC describes this as effectively a government promise to buy short-term IOUs from companies that are ‘investment grade’ (basically those that have a very high credit rating).
2.Explain the BIL Scheme
The Business Interruption Loan Scheme is available specially to UK-based small and medium-sized businesses (SMEs) with an annual turnover of less than £45m. The money will be provided by more than 40 lenders who have signed up to the scheme, including high street banks like Barclays, HSBC, Lloyds and NatWest. The Government says it will provide a grant payment to cover the interest and initial fees for the first 12 months. It will also guarantee 80% of the loan amount, which, in theory, should give banks and financial companies the confidence to lend (more on this later). The scheme will initially run for six months, and businesses will be able to borrow for up to six years. It should be noted before you consider this option that businesses will be liable to repay the money in full; the Government guarantee is for the lenders, not the borrowers.
3. How do people view the BIL Scheme in terms of the hospitality sector?
It would be fair to say that the industry hasn’t exactly welcomed the scheme with open arms. Jonathan Downey, co-founder of London Union, describes it bluntly to BigHospitality as “fucking useless”, adding that the Government has to change the conditions or put simply businesses just won’t apply to the scheme. Brindisa Kitchen co-owner and restaurant financial consultant Ratnesh Bagdai is similarly unconvinced, saying that it should be looked upon more as a last resort than a truly viable option. “There’s a lot here to get your head around,” he says. “From a borrower’s perspective, if they are to try and apply for one of these loans then you should be aware that the bank’s criteria is very stringent, leading to false hope”
4. Are hospitality businesses even eligible for these loans, given that most are now technically insolvent?
“That’s a very good question,” says Bagdai. “The fact is under normal lending criteria, no restaurant forecasts would currently be eligible as a result of the Coronavirus crisis. Businesses have shut down, they have no revenue coming in, and costs are mounting. The only way you’re going to reverse this is to prove that before the Coronavirus hit, you were a bankable business. If you are able to show positive EBITDA prior to this crisis, can forecast similar figures for the 12 months after the crisis subsides, and if you can satisfactorily meet the bank’s other criteria, then attaining a loan through the scheme may be possible.”
5. Will groups that have been through recent CVAs etc struggle to get a loan because of it being hard to prove it can pay it back?
This would certainly appear to be the case. “10 years ago these businesses would probably have been able to provide forecast-led projections in order to secure lending, but today they can’t because the CVA status means they won’t meet the bank’s application criteria,” says Bagdai. “Another group likely to face problems are newer businesses with only one or two years trading to show. It appears Banks are only going to be comfortable lending to businesses with a strong, upward trajectory, and these newer operators will, most likely, only be able to demonstrate a small profit. Ultimately, the businesses within the hospitality sector that are going to be able to secure approval for a loan are the ones that can demonstrate five to six years of profitable trading history, as lenders will consider them to be a much lower risk, where does that leave everyone else?.”
6. There’s lots of confusion about how personally liable are these loans…
Indeed. Many of the questions surrounding these loans concern the liability for borrowers when it comes to paying them back. While the Government saying it will guarantee 80% makes for a nice headline, it doesn’t reflect the reality that the entire burden for paying back the loan still lies with the borrower. And banks will ultimately still be looking for 100% serviceability of that debt, irrespective of the security offered by the Government.
7. Is taking out a BIL a viable option as a way to either keep staff on payroll or pay rent?
The simple answer is no. In terms of payroll, the Government has also introduced a Job Retention Scheme, in which it will pay 80% of staff wages up to £2,500 a month (more details on which can be found here). While in terms of rent, the recently announced lease forfeiture moratorium means landlords will be prevented from repossessing commercial premises if businesses are unable to pay their rent for an initial period of three months; allowing time for operators and landlords to reach an agreement with regards to payment.
8. Would you advise businesses to take one, or does it seem too risky?
Frankly, all the evidence suggests these loans are too risky. Alex Claridge, chef owner of The Widerness restaurant in Birmingham, describes them as dangerous. “Taking on more debt at a time like this is not the answer,” he says. “The overwhelming impression I get is that this is not about saving companies, it’s about flattening the curve so they don’t see the mass collapse of business. And when you look at these loans, there are some serious, nasty elements in there that could lure operators into a false sense of security, but ultimately bury them further down the line.”
9. If I wasn't to take a BIL, what other financial support is available to me?
As was previously mentioned, the Job Retention Scheme and lease forfeiture moratorium will help provide some short term security for hospitality businesses with regards to staffing and rent. And the year-long holiday on business rates by the Government has also been welcomed by the industry. For the smallest hospitality businesses too, there is The Retail and Hospitality Grant Scheme available.
10. What do we know about the The Retail and Hospitality Grant Scheme?
According to the Government’s website, the scheme provides businesses in the retail, hospitality and leisure sectors with a cash grant of up to £25,000 per property. Businesses in these sectors with a property that has a rateable value of up to £15,000 will receive a grant of £10,000; while those with a property that has a rateable value of between £15,000 and less than £51,000 will receive a grant of £25,000.
11. How can I apply?
Businesses do not need to do anything to access this scheme. The Government says your local authority will write to you if you are eligible for this grant. And any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.
#UnitedWeStand has been created by William Reed hospitality titles BigHospitality, Restaurant magazine and Morning Advertiser and is supported by Arla Pro, McCain and Unilever Food Solutions