Scams and cashflow challenges spark worry for UK small businesses as pandemic continues

Another unforeseen challenge has risen its head in recent months. Hackers have been quick to capitalise on the fears and vulnerabilities that the pandemic has highlighted in some organisations, with a dramatic spike in phishing email scams featuring lures and false government tax refunds that encourage click-throughs that lead to the revelation of personal data.

A worst-case scenario can be seen at the recent Czech Hospital cyber-attack, where the hospital was forced to close due to a compromised network.

According to security specialist Cyber Risk Aware, businesses should strengthen their network defences against cyber threats during this pandemic. The company suggests that individuals should be on the look-out for phishing scams at this fraught time and running tests to assess the risks and potential weak-spots. Furthermore, using secure company-provided systems can help mitigate the risk, ensuring cloud-based systems are patched and avoiding the us of personal accounts where possible.

Therefore, taking into consideration the numerous threats to businesses, it is perhaps no surprise that Purbeck Insurance Services has seen a 400% surge in the popularity of its flagship product, personal guarantee insurance, in the past week. The insurance solution is aimed at small business owners who were signing personal guarantees to secure access to finance for their business, putting their own home and life savings on the line.

Urgent need for financial support

With personal guarantee insurance an added security for SMEs, new research from Nucleus Commercial Finance reveals that prior to the outbreak, 47% of SMEs forecast their finances keeping them running for a month if they were suddenly unable to trade.

Furthermore, 69% of businesses claimed they were confident about their cash flow prior to the outbreak, although 6% would only be able to last a day and a further 14% would be able to last up to a week should they suddenly be unable to trade, meaning around 2.67 million SMEs are already be struggling with finances.

Based on the responses of 1,004 senior decision makers and SME business owners between 28 February – 5 March, the research clearly shows that the lack of a financial buffer is a pressing issue for businesses across the country.

Shah added: “While recent developments such as the £330 billion of government-backed loans are welcome news for the industry, we need more clarity on how this will help in practice and which businesses it will support. Supporting UK PLC is vital to the growth of our economy, and in order to do this Government and industry must pull together and work collaboratively.”

Call in the cavalry

Offering facilities of up to £5 million – available on repayment terms of up to six years – to SMEs across the UK struggling under the weight of the pandemic, the Coronavirus Business Interruption Loan Scheme (CBILS) has begun operations.

Specifically aimed at SMEs with lost or deferred revenues disrupting their cashflow, the CBILS will provide access to a total of £1.2 billion of government-backed lending, although the latest announcement stated it would be led by demand and resourced accordingly.

Stephen Jones (pictured below), chief executive officer at UK Finance explained: “The banking and finance sector is committed and has the capacity to support viable businesses with their cashflow and investment needs. The scheme is an important additional solution to the support banks and finance providers are offering SMEs to help them through the cashflow pressures they may increasingly experience during this unprecedented period.”

Delivered by the British Business Bank (the UK government’s economic development bank), through more than 40 lenders and partners, the CBILS supports term loans, overdrafts, invoice finance and asset finance facilities, and comes with an 80% guarantee against the outstanding facility balance for the lender. Furthermore, there is no guarantee fee for SMEs to access the scheme, and the government has offered to cover the initial 12 months of interest payments, although lenders will have to pay a fee.

Established in November 2014, the British Business Bank aims to enable SMEs to prosper, grow and build UK economic activity. The Bank’s programmes are currently supporting more than £7.2 billion of finance to over 93,000 SMEs.To be eligible for the scheme, SMEs must be based in the UK in its business activity, with an annual turnover of less than £45 million, and have a borrowing proposal which would under normal circumstances be considered viable by the lender.

Small companies worry they won’t make it to Easter

The CBILS offered a much-needed float for SMEs struggling to tread water and the government pledging £1.2 billion of funding for the sector was unprecedented and greatly received. However, new research from business finance lender MarketFinance suggests that despite the sizeable fiscal stimulus, some 67% of SME business owners believe funds would not reach them in time and they will run out of cash before April 12.

Overall, 52% of UK businesses are considering taking advantage of the CBILS. This is primarily because 67% of business have a pre-existing loan, and so their biggest concern (as voted for by 36% of respondents) is making repayments for an additional loan under the scheme.

Anil Stocker (pictured below), chief executive officer at MarketFinance, explained: “A third of business owners are expecting at least a 50% drop in sales and, are rightly wary of taking on more loans that they might not be able to pay back. It’s important to realise that in the fine print, many banks will ask for additional security and Personal Guarantees for loan amounts greater than £250,000 of borrowings.

“The number of businesses that believe they won’t make it to Easter has doubled from a third to two thirds despite the Treasury’s announcements. It is imperative that businesses are made aware on how to access the measures they have announced but also to widen the range of finance options available to them”.

With the findings based on results submitted by 5,000 SME business owners across the UK from 20-22 March, 80% of respondents reported a decrease in revenue this month between 40-50%. To prop-up the plummeting revenues, business owners saw a larger overdraft facility as their first call prior to seeking a business credit card, and using invoice finance to inject working capital into the business.

Rashesh Joshi, accountant at Alexander Rosse said: “We have been in touch with a number of accredited lenders and our colleagues at larger accounting practices. Feedback, information and practicalities of the application process and lending criteria are decisively in slow motion. It seems large institutions with all their resources had no contingency plans in place. We are aware of challenger banks and other businesses who could act quicker but have been frustratingly left out of the original process (but now invited) thereby losing further critical time.

“We are partnering with our clients to help with their cashflow forecasts, rationale for the loan application, contingency plans, how they would cope with self-isolating staff and a whole raft of questions that the banks will ask before they will consider lending. We are encouraging lenders to get with the reality on the ground which is frankly brutal.”

Established in 2011, MarketFinance offers an online platform for businesses to access a range of flexible finance solutions such as business loans and invoice finance.

With a total of £2.9 billion lent so far to companies across a variety of sizes and sectors, the lender is backed by Barclays, Santander InnoVentures, European venture capital fund Northzone, private equity group MCI Capital, and Viola Credit.

Stocker concluded: “Economies around the world are in a state of shock. In the UK, the government has poured billions in subsidies, grants and guaranteed loans for businesses, but nobody can be sure how well the rescue will work and how this money will be propagated around the small business community.”