In light of the ongoing threats to business posed by the COVID-19 crisis, we’ve prepared the following guidance to assist sole traders and limited companies. For more information on what measures are available to you now and in the future to protect you and your business, please follow one of the following two links that’s most relevant to you:
Sole traders – How to manage money risks when you’re a sole trader
Ltd companies – Managing and taking money out of your limited company
As well as updating our guidance, we’re also keeping up to date with the latest announcements over on our blog:
You may also want to keep up to date with the government’s own COVID-19 guidance and documentation via the gov.uk website
If you're unable to run your business during this time, you should talk to your accountant and to your bank as soon as possible. They know of, and have early access to, the finance options that will be most suitable, and fastest, to help your particular business.
Update: 4th May 2020
The government have announced today that those people making a claim under the self-employed income support scheme must do so directly themselves. In other words, an accountant can not submit claims on behalf of their clients (although they may be able to help prep an application).
The claims service is due to open on 13th May, sooner than originally thought. When it does go live, those making a claim will need to do so via the government’s HMRC gateway, using their HMRC account details, also known as your Government Gateway ID.
In order to make your claim as quickly as possible, head to the government’s HMRC services site now and attempt to log in to make sure you have access. If not, setup is fairly straightforward, but may well delay your ability to make a prompt application once the scheme begins
Bounce Back Loans
From Monday 4th May, there will be a new fast-tracked loan scheme for small businesses. The scheme aims to provide businesses with much-needed finance within days, with loans backed by a 100% guarantee from the government for sums between £2k–50k.
Visit the government's website here for more information.
Covid-19 update – ‘startups relief’
On 20 April 2020, the government published details of a £1.25 billion support package for innovative early-stage businesses struggling through the Covid-19 outbreak.
Support is being offered via a £500 million investment fund (The Future Fund) and a further £750 million of support for SMEs focusing on research and development (R&D).
The Future Fund will be administered by the British Business Bank and goes live for applications on the 20th May until the end of September 2020. It will provide convertible loans from the government and private investors worth between £125,000 and £5 million in return for an equity stake in the company. To be eligible, a company must already have raised £250,000 in equity funding.
Funding for R&D is to be managed by Innovate UK who it is also intended will begin making grant and loan payments to eligible businesses from mid-May also.
Both support arrangements leave a lot of questions, and some substantial concerns outstanding. The government is expected to issue more updates and details addressing issues raised on them both, in the coming weeks, ahead of their go-live dates.
For more details about the announcement, visit the government’s website via this link
As a small business, you have numerous funding options available to you. Of course, this is a good thing, but it also makes picking one rather difficult. And choosing the right one(s) at the right time is really important.
To help you out, we’ve pulled together an overview of your options. And you can see what our experts and community feel about them in their accompanying video soundbites too!
Here’s a glance at the options we’ll be covering...
1. Your own cash
It’s not in the table above because it really goes without saying that you’ll have to put something in at the outset. Indeed, your own cash is typically the first source of financing for your small business. It may be your only initial option if you’re very much at the idea stage, have a lack of current or projected revenue and/or you’re hesitant to give away any equity (shares bringing ownership rights) just yet.
It could also help you gain finance in the future; more often than not, you’ll need to have invested your own money in your business idea before anyone else will be prepared to do so.
Take a look at our guide to what investors look for, which explores the importance of being ‘backable’ and how you can achieve this.
2. Friends and family
One of the most common means of funding a startup that needs to spend money straight away (e.g. on product development), is to raise money amongst family and friends.
This is generally quite a straightforward process. It’s sometimes structured very informally, but it’s always wise to have documentation that clearly shows how much money has been given, what that entitles the contributor to (if anything), and whether the money comes with expectations or requirements.
If your business is a limited company and the ‘friends and family’ money comes with the expectation that it will be converted into shares, you should take a look at our guide to shares and your company's share capital.
You’ll also need our shareholder agreement template and to update your existing articles of association, which contain the rules for how the shareholders can influence your business and what they’re entitled to.
And don’t forget to look into the highly attractive tax relief that you can offer these early-stage investors. It will make investing in you so much easier, if you can tell interested investors that a substantial chunk of their investment money can be offset against their tax bill! See our guide to EIS and SEIS relief for more information.
Be wary of promoting your business for investment to anyone, at all times. There are strict rules imposed by the UK’s Financial Services Regulator, and they affect even the youngest startups as well as more established businesses. Our guide to promoting your business to investors can tell you more.
3. Bank overdrafts
These are available from most major banks dealing with business customers. They are typically integrated with the banking package that you select. While terms and levels of overdraft will vary from one bank to the next, they don’t tend to vary much.
In most cases, the bank can demand the repayment of the overdraft and you must repay it immediately. Interest is usually charged on the overdrawn amount.
As with all banking arrangements, make sure you know what costs and extra fees you may incur when you set up your business account, as they do work differently from personal bank accounts. You may be charged a fee, for example, to transfer money or operate direct debits.
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