Exploring the Government Covid19 Support for startups and SMEs. May the 4th be with us!

If you are a startup or an SME, there are a lot of options out there for government support. Great to see. Super complicated to understand, and of course it is a fast-changing landscape so it’s tricky to keep up with the detail and the risks associated with each option.

In our digital Phoenix sessions over the next few weeks, we will look at the different options in the UK and PT, and using the Canopy experiences in both countries to colour out on the options.

https://www.british-business-bank.co.uk/

Today we took a quick look across the UK options, most of which are delivered through either HMRC or the British Business Bank.

Here are some useful links:

• Overview of all options available -> https://www.gov.uk/coronavirus/business-support
• Computer week article on the UK startup Fund -> https://www.computerweekly.com/news/252481853/UK-government-announces-Future-Fund-to-support-startups-during-Covid-19
• UK Research and Innovation Covid call (grant funding) -> https://www.ukri.org/funding/funding-opportunities/ukri-open-call-for-research-and-innovation-ideas-to-address-covid-19/
• Bounce Back Loan Scheme (under 50K) ->https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/

So to outline our situation: Covid19 has impacted a number of our revenue streams at Canopy and also the decisions by our various Clients, Partners and Sponsors. Most noticeably it has removed our ability to run events in person, which are very different to running them online, and to move around in the different geographies and ecosystems where we work.

We are lucky though for a couple of factors. Firstly we can do a lot of what we do online. All of the people in Canopy have multiple roles, personal revenue streams, and other things going on and finally we are very lucky that many of our Community, Clients, Partners and Sponsors are relatively resilient in the short to mid term due to the way they are funded.

We have however seen a material change in cash flows and timings, as well as a pause to key decisions on new contracts alongside a huge uncertainty for a lot of the next 6 to 18 months. So like all good business owners and managers we need to get specific and we need to get proactive with our cash flow management.

In order to prioritise things, what we have looked at within the Canopy framework in the UK is:

• Option 1 — Business rates grant of up to 10K for an SME. This one didn’t work for us because we have a super small office footprint across co-working spaces in the UK.
• Option 2— Defer VAT. This is a great thing to do with HMRC being fully supportive. You need to make sure you cancel your direct debit so cash isn’t automatically withdrawn from your bank account, but otherwise, the paperwork is minimal and the cash flow position greatly enhanced by putting a quarterly amount of VAT into your working capital.
• Option 3— PAYE. Deferring the PAYE is also super efficient and possible with HMRC. Paperwork is low. Cash flow upside is noticeable.
• Option 4— Furlough Program. Covering up to 2.5K salary per employee this option is very powerful and also could help to balance other home life priorities for many, for example if you are furloughed then the impact of home schooling children is a little less, and some might say there is opportunity to have fun with it :) The UK furlough program does require though that the employee do absolutely no work at all for the company during this time, unlike the PT version called ‘lay off’ where up to 20% work time is permitted. This means that if there is a bubbling along of requirements the furlough could actually be detrimental in some instances. It is initially available for up to 3 months. Depending on how the world changes this may be longer. Challenge on it has been the timing to get going. First payments have been seen by Canopy members this month. Prior to this, it was a great unknown.
• Option 5— SME Loan facility. Getting out of a problem, or creating some contingency, with an SME loan facility looks very attractive, particularly as the loan scheme is 80% backed by the government. The new Bounce Back Loan Scheme is even 100% backed. Where this one stumbled for us when we first looked at it though was in the way some banks chose to administer it. Initially, there was a requirement for personal guarantees for Directors, through some (not all) lenders. This meant that should the loan be in default at some point the bank could come and claim 100% back against Director assets and then any remaining loss would be covered by UK gov. This moved around a little and seemed to settle that PGs would be required when the loans were above 100K. The paperwork for the loan was also a little clunky and certainly not startup friendly. Looking at trading history and previous sustainability etc the model was definitely set up with traditional businesses in mind. It was great to see the bounce back loan program arrive.
• Option 6— take in a financing round of equity investment. With the startup fund now in place to match funding, there could / should be some liquidity out there to bring in particularly if we looked at the social impact or crowdfunding area. Timing on this would be key.

So looking across all these options what we considered all the time is that the timelines for Covid19 resolutions, vaccines, lock downs and treatments are very unknown. We could potentially see a cyclical return in line with influenza, we might also see second waves or third or fourth. It is one of the least clear or understood planning horizons many of us have ever known.

Guiding principals for Canopy though have been to keep paying our bills on time, keep paying each person on time, and to keep trading and building as we would do normally. In fact we are now running significantly more events and the community is growing at a faster rate than pre covid19.

So today, in the UK, we took the first step to apply for a Bounce Back Loan. We registered through our business bank this morning and received the first confirmation mail. Now we await the next stage email and what is expected to be 7 questions around the impact, revenues and amounts involved.

Useful things to note about this scheme:

• loans of up to 25% of revenue
• Capped at 50K
• 7 question application form (not seen it yet)
• 6 year repayment plan
• 2.5% interest
• first year interest covered by British Gov (not deferred interest but paid for you)
• 12 month payment holiday
• no early repayment charges.

So this felt like a good way to create a contingency cushion against the large amount of uncertainty in the macro economic and macro health environment.

Let’s see where it all goes. May the 4th be with us! and you :)

Digital Phoenix series every Monday at 3pm UK #neverstoplearning

The Digital Phoenix series continues each Monday at 3pm UK / Lisbon. Next week we will look at how things developed on the Bounce Back Loan Scheme for Canopy and also what options are now available in PT now that the country is starting to relax restrictions and progressively open up again.

Register your place at the next edition fo Digital Phoenix HERE.