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Five funding tools for retailers and restaurants during Covid-19

Posted: 11/05/2020


After weeks of Government-enforced lockdown across the UK, Covid-19 has been particularly challenging for the retail sector and restaurants unable to rely upon online custom as a viable substitute for onsite sales. These difficulties are compounded for restaurant businesses whose cash reserves would typically last just 16 days if demand were to cease.

With normal service unlikely to resume even once lockdown measures are lifted, businesses in these sectors are being forced to regularly make and revisit difficult decisions. First and foremost, we encourage all businesses to explore (and make use of) the vast number of state-aid measures available. For a full list of these measures, see here.

However, we also advocate using this period as an opportunity for businesses to become ever-more flexible and to find innovative ways to reach their clients and generate short-term revenue, including the ‘war-bond’ theme.

In this article we set out five key funding tools that retail and restaurant sector businesses can use to weather the storm.

War bonds

Businesses across the sector are deploying creative campaigns to generate short-term income and incentivise customers to continue investing in their services. Among these is the offer by some businesses of bond-type vouchers to customers. For instance, customers can pay an agreed sum of £100 in return for a voucher worth £200 to be used in-store within the next 12 months, the set maturity date.

Businesses may also consider issuing mini-bonds to their customers or other private investors, allowing the investor to lend money to a company for a set period of time in return for interest plus repayment of the original sum at the pre-determined maturity date.

While businesses do not have to be regulated by the FCA to issue mini-bonds, they are not without risk to the business or the individual. Businesses should consider carefully whether they will be capable of making the repayments in the future. In any event, we recommend that you seek legal advice before issuing any such facility.

Coronavirus Business Interruption Loan Scheme

The Coronavirus Business Interruption Loan Scheme (CBILS) allows businesses with an annual turnover of up to £45 million to access a finance facility of up to £5 million from certain lenders on repayment terms of up to six years, depending on the type of finance. The Government will provide the lenders with guarantees of 80% on every loan, subject to an overall cap for each lender, but the borrower remains 100% liable for the debt.

On 2 April 2020, the Government revamped and expanded the scheme to overcome the challenges caused by loans applied for and issued from 23 March 2020.  The updated scheme ensures that:

  • businesses can utilise CBILS even if they could be offered standard commercial terms and
  • personal guarantees will not be required for facilities below £250,000.

These changes are to be applied retrospectively and will apply to all existing CBILS facilities. For further information on CBILS and eligibility, please see the guidance from us and the British Business Bank.

For companies with an annual turnover in excess of £45 million, the Coronavirus Large Business Interruption Loan Scheme (CLBILS) is available to provide a loan facility of up to £50 million (subject to eligibility). For more information on CLBILS, see here.

Cash grants

The Government has introduced specific measures to support small businesses and certain businesses in the retail, hospitality and leisure sectors. The Small Business Grant Fund (SBGF) and the Retail, Hospitality and Leisure Grant (RHLG) offer up to £25,000 per property, depending on eligibility. Your local authority responsible for business rate billing will contact eligible businesses to arrange payments.

In respect of the SBGF, the Government will provide £10,000 for businesses that were eligible for Small Business Rate Relief or Rural Rates Relief. Separately, the RHLG offers a grant of £10,000 to eligible businesses with a rateable value of £0 - £15,000. The grant rises to £25,000 for those with a rateable value of £15,000 - £51,000. For more information, please see the Government’s guidance here.

Furlough scheme

Under the Government’s furlough scheme, employers can claim a grant that covers 80% of the wages of employees placed on furlough leave, up to £2,500 per month plus the associated employer National Insurance contributions and pension contributions. Eligible employees include full-time and part-time employees, and those on agency, flexible or zero-hours contracts and apprentices. The employee must have been on the employer’s PAYE payroll on or before 19 March 2020. For more information on furlough leave, see our full FAQ guide.

Bounce Back Loan Scheme

The Bounce Back Loan Scheme (BBLS) allows small businesses in the UK to borrow up to £50,000 with a loan term of up to six years. BBLS provides an alternative to CBILS and each loan is 100% guaranteed by the state. Crucially, the scheme is advertised as a fast-track finance scheme with cash arriving within 24 hours of approval. For more information, see here.

 

This article has been co-written with Laurence Nelson, a trainee solicitor in the corporate team.


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Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority.

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