Transcript of the Business Finance Bulletin Week of 27th July 2020

Here is the transcript of this week’s Business Finance Bulletin…

Changes to HMRC's creditor position in an insolvency; calls to extend the deadlines on the government support schemes; and a look at the latest CBILS's and Bounce Back loan figures.

All of this in the latest Business Finance Bulletin.

HMRC Creditor Status in an Insolvency

Let's start this Bulletin by having a look at a little known change which came into effect on the 22nd of July, which could have an impact on the cost of unsecured business borrowing.

So what was that change?

Well, on the 22nd of July, the Finance Bill passed through Royal Assent. In that Finance Bill was a change to HMRC's creditor position as regards where it ranks when payments are due to it under an insolvency situation.

Let's wind back to 2002. Before 2002 HMRC had a preferential creditor status. If a company went into insolvency HMRC in respect of PAYE, VAT and National Insurance contributions would have first call on funds ahead of other unsecured creditors. However, via the Enterprise Act of 2002, their position was downgraded, and they sat alongside other unsecured creditors. So, money was shared out equally. The government obviously is looking to increase its tax take.

In 2018, it decided to reverse this position, making HMRC again, a preferential creditor.

What impact is this having in terms of business borrowing? Now we've got the position where, as before, HMRC can now take first call in respect of VAT PAYE and National Insurance. That means there is less money now to share out amongst the unsecured creditors. So that's going to put them in a worse position.

From a business banking point of view, that's obviously is going to be a concern. If you've got a Debenture which captures stock and other assets, now there's less money to go around to secure and satisfy that Debenture. The impact's is that it's going to make borrowing potentially more expensive or take away and dampen further the amount of appetite that banks have to lend to businesses. It's a little-known change, but it potentially could end up costing you a bit more money when it comes to borrowing on an unsecured basis,

Calls to Extend Wrongful Trading Moratorium

As businesses start to open their doors again and get back to a semblance of normal trading, there are calls now being made for the government to extend certain elements of the support that they provided businesses over the last couple of months.

One area that is being called for an extension is a change that was made via the Corporate Insolvency and Governance Act early this year. Under this Act, the concept of Wrongful Trading has been temporarily put aside. What I mean by this and I've covered this in previous Bulletins, Wrongful Trading where you are a Director, if you knowingly enter into a credit agreement, when, your business is insolvent, you could actually be accused of Wrongful Trading.

The government thought that this isn't right during these turbulent times, and so they put a temporary moratorium on that to allow directors to take really good decisions in these uncertain times, mindful of the fact that they would not then be prosecuted for Wrongful Trading.

That moratorium finishes on the 30th of September. RSM, an auditing and accounting and consultancy firm have written to the Chancellor last week, pleading to extend that moratorium to the end of December this year, to give another period for businesses to settle down while they reassess their model and look at how they can do business and look ahead as to what their borrowing requirements are going to be; they think it's unfair that that 30th of September deadline is met.

There are also calls at the same time for the government to further extend the CBILs scheme as well. We'll look later on in this Bulletin, but there's still lots of applications coming through. As we start to get back into a new normal, calls are now being made for the government to extend deadlines and provide further support to businesses. Continue watching this Bulletin and I'll bring you updates as and when they come out.

CBILS & Bounce Back Loan Update

To close this Bulletin, let's take a look at what's going on with the Bounce Back Loan scheme and the CBILs scheme. Figures have been released by HM Treasury and the British Business Bank as at 19th of July and the figures reveal that a total of ￡48 billion has now been lent out by accredited lenders. That's ￡48 billion of new money that's been pumped into the economy in order to support struggling businesses.

Let's have a look at the numbers underlying those figures. First, let's look at the Bounce Back Loans. In terms of loans distributed of Bounce Back's, there are now 1,084,153 loans. ￡32.79 billion has been lent out and it's got an approval rate of 82%. So a very strong success rate.

Turning now to CBILs, which starts kicking in at ￡50,001 and above, not as good a numbers as Bounce Back Loans, but still really strong. Total number of CBILs loans now stand at 55,674; ￡12.2 billion has been lent out and it's got an approval rate of 50%. So not as good as a Bounce back Loan. There's more due diligence and assessment goes into a CBILs facility, hence that success rate not being as good as under the Bounce Back Loan scheme.

I've mentioned in previous Bulletins, you've got to be really aware if you've taken out any of these facilities, in 2021 your repayments will kick in. If you're looking to borrow money going forward under ordinary loan schemes, the banks are going to be critically looking at this new liability that will kick in in quarter one and quarter two next year; they're going to factor those new repayments into your cashflow. Also, you've got to be mindful as well, if you've taken out a Bounce Back Loan or CBILs, then you're sending a signal that your business is not as strong and that you needed it.

Now I know many businesses that just applied for the loan because it's such a good interest rate and why wouldn't you. And certainly it's there to use to help grow your business. But if you don't need it, I would critically take a look say month 10 before your repayments kick in as to whether you actually still need it.

If you want to have a clean balance sheet are not impact on your ability to borrow money in the future. Think about paying it back. There are of course no penalties to paying it back early. The schemes continue to be popular and if you haven't applied and you do need it, get in there quick because all of these schemes have a finite deadline.

Wrap Up

That's it for another Bulletin and as ever, I hope you enjoyed watching. If you did, please, don't forget to give it a like and a share and subscribe to this channel. I look forward to being with you next time. In the meantime, have a safe, profitable, and healthy week.

To watch this episode of the Business Finance Bulletin go here.

Rob Warlow is the MD of Business Loan Services which helps business owners raise commercial finance. For more information check out www.businessloanservices.co.uk and find how to subscribe to the weekly Business Finance Bulletin