Covid-19 has clearly created serious challenges for businesses across all sectors. There has been a lot of fear amongst business owners, and with all but essential travel strongly discouraged, pressure has obviously been placed on the hospitality sector.
In this guide, I will break down the options available to hotel owners in the UK to help manage their cash flow during these tough times. I will cover the tools available to you through the government’s support package, and the traditional borrowing methods available to small business owners.
Government grants and support
On 17 March, the government released details of grants for business owners. A grant, unlike a loan, does not have to be repaid. The grants on offer are:
Small business grant funding
Small business grant funding entitles businesses who will benefit from business rates relief to a grant of £10,000 to assist with cash flow. As stated on the government’s website (https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses), you don’t need to do anything at this point, the scheme is being set up now and will be available in early April.
Further guidance will be provided soon, and your local council will contact you in early April to provide details of your grant.
Grants for larger businesses
Those businesses that are still expected to pay business rates will now have a payment holiday on them for 2020 and 2021. This is the case for all businesses in the retail, hospitality and leisure sectors.
In addition, businesses with a rateable value between £15,000 and £51,000 will qualify for a larger grant, of £25,000. As with the small business grant, local authorities will manage the process and are available for any enquiries. Although guidance hasn’t specifically been given at this point, it appears that you must contact them, rather than waiting to be given details.
Further detail on the business rates holiday will be given by the 20 of March by local authorities.
Loans and other borrowing tools
Most businesses will require funding on top of that available through the grants above. In those cases, the following products should be considered:
Coronavirus Business Interruption Loan Scheme
Again, this represents new funding on the back of the 17 March press conference held by the PM and Chancellor. Again, further detail is to be offered – this time by 23 March.
These loans allow business owners to borrow up to £5m, with a guarantee of 80% of the funding offered by the government. The government will also cover interest payments for the first six months.
The scheme will be delivered by the British Business Bank (https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/). We will provide further detail on this scheme as soon as it is given by the Government.
Unsecured Business Loans
These loans, which are available today, can be accessed through banks, crowdfunding platforms and specialist lenders.
The rates charged can vary greatly and some lenders are not supporting the hospitality sector currently, so the quickest way to find funding is to speak to a fee-free business loan broker, who will be able to outline the options available to you.
Unsecured business loans are usually available from £5,000 to £500,000 and must be repaid over a term of six-60 months. Funding can usually be arranged in 5-7 days.
Secured Business Loans
These work in much the same way as unsecured business loans, however, the lender will require a charge over a property. The security offered can be any property, including your home, investment properties, or your hotel.
As the lender has taken security, they are in a safer position and can offer more flexible criteria and longer terms. Obviously, as a result of the charge, the property will be at risk should you fail to keep up repayments, so this must be considered carefully.
These loans are available from £26,000 with no maximum and terms are available up to 25 years.
As the legal process of arranging these loans is more involved, applications usually take 14 days.
Commercial property can be remortgaged to either release equity or reduce your monthly costs. Hotel owners can usually borrow up to 75% of the value of their property over terms from five-25 years.
Large amounts can be raised using this method and with rates of 3% or below common, monthly payments can be kept to a minimum.
The downside to commercial mortgages is that cash flow will need to be manageable for a little longer, as valuation and legal fees will need to be paid out before funds are released. Typical applications take around 8 weeks to complete, so commercial mortgages (https://abcfinance.co.uk/commercial-mortgages/) won’t be suitable when funds are needed quickly.
Bridging loans will never be the first port of call but can provide valuable breathing space. They can be arranged quickly, often in around 10 days.
They are secured against your property and can allow you to release large amounts, loans from £25,000 are common, with no maximum loan. Terms of up to 36 months are available.
The interest payments can be paid monthly or rolled into the loan for the whole term.
Applications are largely based on the security offered and the planned method of repaying the loan. As such, they can be a valuable resource for businesses who will fail to meet the affordability assessments of the products above.
The costs of borrowing are higher than other secured products, starting at 0.65% per month. As they are a higher risk borrowing product, advice should be taken from a specialist bridging loan broker (https://abcfinance.co.uk/bridging-loans/)
By Gary Hemming, of ABC Finance