From XU Magazine, 
Issue 29

Funding your clients’ recovery in the post-Covid world

How to finance recovery once government support is gone

This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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Getting used to a lack of Covid support

With government-backed Covid financial support all but over, and the Recovery Loan Scheme, due to end on 31 December 2021, the UK’s businesses face a funding dilemma. 

The CBILS, Bounce Back Loan and furlough schemes are all now closed and part of Covid history. And with most of the Covid financial support, such as business rates holidays, now removed, the funding options available to business owners has decreased considerably. Yet many sectors and companies are still in the intermediate stages of recovery. Additional non-government funding is almost certainly going to be needed to help drive growth, expansion and investment in the future of the UK business landscape.

So, what can your firm do to help client’s find the best sources of funding as we enter a new year and a post-pandemic business environment?

Knowing what financial support is available

Helping your business clients access the best routes to funding is not always an easy task. Sometimes finding the right lenders, choosing products and closing deals isn’t exactly a walk in the park. But accessing funding has been far easier over the past 18 months. With so many state-run schemes providing extra funding, grants and finance options, more avenues were available.

With the plug now pulled on most of the key schemes, it’s worth reiterating what government-backed schemes are still available now.

Current options include:

• The Recovery Loan Scheme – the Recovery Loan Scheme (RLS) is available until June 2022 for UK limited companies that have been impacted by Covid. If your clients fit the eligibility criteria then you need to act fast to get an application in, given the looming deadline. The scheme allows qualifying businesses to borrow up to £10 million in total as term loans, overdrafts, invoice finance or asset finance. Businesses must be ‘viable’ and have a robust business plan for driving their recovery. Terms and repayments are very favourable, compared to the average business loan, so the RLS is a good funding route to explore while it’s still available. At MarketFinance, we’re offering the first six months with interest-only repayments to give businesses an extra boost.

• Innovate UK grantsInnovate UK grants are offered by UK Research & Innovation and aim to provide funding for R&D projects and development. Grants are available across a range of different industries, sectors and specialisms. These funds finance the underlying expense of running development projects and encourage much needed innovation as a result. If a client qualifies for a grant and successfully claims the available funds, this can be a very welcome cash injection. And, unlike the RLS, there are no repayments to make. 

• Super-deduction capital allowance – super-deduction isn’t a route to funding, per se. But it is an effective way for clients to cut their corporation tax bill and reinvest that capital back into assets and growth. The super-deduction tax allowance allows businesses to reduce their tax bill by 130% of the cost of qualifying new investments in plant and machinery. If clients invest in equipment, plant and machinery assets before 31 March 2023 they’ll be able to claim up to 25p for every £1 they invest. It’s worth noting that hire purchase is allowed under the super-deduction rules, which greatly enhances the usefulness of the scheme for cash-strapped businesses.

• VAT: reduced rate for hospitality – for clients working in the hospitality sector, the reduced rate of VAT is available until 31 March 2022. The reduced rate of 12.5% (rather than the standard 20% rate) helps hospitality businesses claw back some of their tax costs. This isn’t a replacement for good funding, but it is a measure that could well make a difference for cash-poor hotel, cafe and restaurant clients.

The myriad routes to external finance

As we’ve seen, some government-backed support is still available, if you know where to look. But with the funding landscape now returning to a more normal position, your firm is faced with a need to review how it offers funding advice to clients. Falling back into the pre-pandemic ways of relying on bank overdrafts and loans is not an option. However, if there’s one thing we’ve all learned since March 2020, it’s that you have to look forwards, not backwards, to get ahead. Innovation and a forward-looking attitude will be key to success during these challenging economic times.

If your firm hasn’t explored the potential for offering funding advice, now is a good time to look at the benefits. As your clients’ most trusted adviser, you’re in a pivotal position for helping business owners and management teams devise a meaningful funding strategy.

You know every client’s key business goals and you know their financial situation. The next logical step is to help them formulate a funding strategy, work out their budget needs and locate the necessary external funding. And with lenders like MarketFinance offering ongoing support for accounting partners, it’s never been easier to match your clients with the best funding.

Finance options open to you and your clients include:

• Invoice finance – where cash flow is poor and clients’ recovery is faltering as a result, invoice finance is a good option to explore. Invoice finance lets them advance the funds owed to them in outstanding invoices, providing fast access to liquid cash when it’s most needed. There’s no need for clients to commit their entire sales ledger; they can simply select which invoices to fund.

• Asset finance – if clients are looking to make use of the super-deduction capital allowance, access to asset finance is likely to be important. Asset finance provides the substantial funds needed to buy new large-scale assets, like vehicles, machinery or plant. It works by using a company’s balance sheet assets (such as investments or inventory) as security to borrow money or take out a loan. By securing the right asset finance deal, clients can also make use of the super-deduction tax saving, providing a financial helping hand as their business grows.  

• Flex loans – where clients need access to small-scale loans on an ongoing basis, a flex loan is a great option to consider. Businesses can borrow up to £100,000 of flexible working capital to withdraw whenever they need it. They also have the ability to review and reload their loan balance on a schedule that works for their business, keeping funding available when it’s most needed. 

• Unsecured business loans – where larger sums of money are needed to finance recovery and growth, an unsecured business loan can open up the necessary funds. Clients will need to demonstrate their financial stability to lenders (and have the numbers and evidence to back this up). But loans can be the starting point for transforming the prosperity of a business. Taking out an RLS loan with MarketFinance could give your clients access to between £50,000 and £350,000, with interest payments only for the first six months. There’s no need for a personal guarantee, and interest rates are available between 7.6% to 10.18%, repayable over 4, 5 or 6 years.

• Private investment and private equity – where substantial investment is needed in the future of the client’s business, there’s also the option of private investment. Appealing to investors is a tried and tested route to additional capital, but a certain amount of caution is also needed. Holding a funding round may pull in substantial investment, but there is the question of control to consider. If the business is selling off shares to investors in return for equity, the founders or executive team will have to relinquish some control to its new shareholders. Getting the balance right between retaining control and accessing higher investment is key here – and will mean attracting investors who share the client’s core vision and future goals for the business.

The value of adding funding advice to your services

Negotiating the twists and turns of the business landscape is always a challenge. But when you work closely with your business clients, your firm can become an integral part of their strategic thinking. Providing the additional value of your professional expertise and commercial knowledge makes a huge difference. And when you work with experienced, flexible lenders, this opens up a world of funding possibilities for your clients.

Take your advice out of the theoretical realm and make a real difference to your clients’ business success through sensible funding advice. Plan out their growth strategy, help them access key funding to kickstart a sustained and stable recovery for their businesses.

RLS loans are available from MarketFinance until the scheme ends, currently June 2022. Talk to us about the positive impact that a loan could have for your most ambitious clients.

Why leave it there?

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