Posted: 29 Apr. 2020 10 min. read

COVID-19 – Five weeks in: The practical issues with getting financial support

We’ve just completed our fifth week of lockdown in the UK and unquestionably the UK High Growth Tech sector has been more immersed in FP&A, operational resilience and “fast finance” than ever before.

Times are undeniably tough, but we’ve seen teams across many high growth organisations deliver incredible efforts, with remarkable agility, move beyond remote working challenges and go above and beyond to navigate the tax, financial and legal storms.

And so, what have we learnt?

1. CBILS - the practical issues with eligibility

CBILS opened for business on 23 March with much optimism!

For time, UK venture debt lenders had been courting UK tech CFOs. Suddenly, the tables were turned. Lenders themselves were those feeling overwhelmed and handing out the unfortunate notes of rejection.

It became apparent that EU state aid has created obstacles that need further consideration. The EU Commission’s longstanding guidance putting state aid limitations on Undertakings in Difficulty.

For UK tech the unfortunate language in the Undertakings in Difficulty definition pulling in businesses with accumulated losses amounting to greater than half of share capital.

Lenders (hands tied) applying this guidance in strictness have declined credit.

Companies (with limited awareness) were left wondering why – time wasted and still no closer to finance.

2. Back to the Future – optimism in the Future fund and R&D Grants?

On Monday 20th April market sentiment improved. New funding, designed for SMEs. Some optimism is back and the hope is that the administrators (BBB and Innovate UK) will be able to deploy funds quickly once live in May.

But will the same state aid point may remain? Will R&D grants be available for Undertakings in Difficulty? Will more time be lost in applications facing rejection? If we learned anything over the last five weeks it’s that clarity early on is important.

The Future Fund is complex too – convertible debt comes with its own accounting and tax considerations. There may be some unforeseen consequences here of conversion or unwinding.

3. Access to existing credit and good investor relations have supported better decisions

Those who were able to acted quickly, and many did things to improve the balance sheets such as:

  • Immediately drew down on their liquidity lines
  • Deferred rent and tax payments
  • Making tough decisions regarding workforce and using government reliefs where able
  • In some cases contractually reducing pay and offering replacement incentives - navigating the tax challenges with payments in lieu and salary sacrifice.

Many engaged wider stakeholders early, and have held positive conversations with investors. Some have agreed facilities for new debt, some have instigated new funding rounds.

With hindsight, the better responses in the last five weeks have relied on leaning out – to external stakeholders and wider advisor networks for interpretation and guidance.

The private sector has responded too (lenders and investors alike) with packages of support supplementing the government reliefs.

4. The decisions do not end - the eye is now on recovery

For a brief moment we reflect on how many have restructured, refinanced and reworked the normal. But now, for many, all eyes are on the future.

  1. How does JRS end? Will it end in one go? How would that work with people coming out of lockdown… what comes first: ops, sales, finance?
  2. What’s the working cap need into recovery? Is the current lender group supportive….if not where does that money come from?
  3. Will the same fundamental right to exist continue in the same way as it did before – will customer patterns really remain the same as they were – and if not where will the money come from to drive through the market changes?

The challenges unfortunately are one and many. Back stronger!

The UK Deloitte Private High Growth team is running monthly webinars with experts from across the business to offer practical considerations for Founders and CXOs. Please do register if you’d like to learn more.

Finally, Deloitte has pulled together a useful framework on resilient leadership and provides practical and specific steps that can help blunt the crisis’s impact—and enable organizations to emerge stronger, you can access the guide in full here.

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Key contact

Ryan Carey

Ryan Carey

Partner

Ryan is a Partner in our Private Markets Tax practice and leads our High Growth Companies tax team nationally. He focuses on advising a variety of technology enabled businesses on corporation taxes, as well as shareholders and management teams on their personal tax positions. He has a particular market focus on UK FinTech.