Funding amid COVID-19: alternatives to government support

By Damon Walford, CCO, Swoop

You’ll have read about the various measures the Irish government has introduced to support businesses and sole traders struggling with the commercial and cash impacts of COVID-19. 

But what if these support measures don’t suit the shape of your business? Perhaps, despite the pandemic, your revenue is taking a turn for the better or you’re looking to expand? Or you might have found out that you don’t qualify for schemes? 

So what are the alternatives to the government’s COVID-19 support measures? I won’t talk about business VAT deferment, credit cards or business overdrafts here, as you’ll most likely have looked into these already. Instead, whether you’re after growth or simple survival, I’ve complied a list of ways in which you can improve your cash flow and boost your working capital as the pandemic unfurls. 

I’m covering lending, equity and cost-cutting here. 

First, lending. Rather than taking out a straightforward working capital loan, you might benefit more from invoice finance (raising cash against invoices) or asset finance (e.g. leasing) facilities. If you’re trading internationally you might also look at different types of trade finance to help you secure your supply chain or get paid earlier than you might otherwise. And if your revenue is looking good, but you can’t (or don’t want to) bag a loan, you might consider a business cash advance. 

Second, you might be in a position to attract equity investment. Investors are still looking for opportunities – and we’re currently working to get a number of our customers’ investor ready. 

And, third, I can’t write a blog about funding without highlighting ways that you can cut your everyday costs.

1. Lending alternatives to the government-backed funding schemes

Invoice finance  

If you’ve issued invoices to your customers and these haven’t yet been paid, invoice finance unlocks this money early. In other words, you borrow money against your unpaid invoices (accounts receivable). 

This might be helpful if, for example, you’re taking on a large, new contract and you want to finance a specific invoice (selective invoice finance). If the contract is with a new customer, you might prefer to outsource credit control to your invoice finance provider (factoring).

With all types of invoice finance, rather than waiting for your invoices to be paid, a lender will advance you most of the value immediately – so you’ll get paid faster for completed work. A lender typically advances you up to 95% of the value of your invoices, with most of the other 5% paid to you later. (You pay a small fee for the privilege).

Asset finance

Don’t buy it, lease it! If you need computers or other business equipment, consider leasing them rather than using up cash reserves. You can expense the lease costs when you calculate your business taxes. And if you have an existing lease, see if you can negotiate better terms.

The question to ask yourself is: what has this enforced global experiment taught you about the way you and your employees work? More specifically, since we’re talking about finance here, what equipment do you need to buy in order to make your business more efficient and flexible longer-term, especially if a significant proportion of your workforce might be working from home and might need more than a laptop?

You might also want to consider raising finance against the assets your business already owns – sweat you assets.

Trade finance loan

If you’re dealing with international buyers and suppliers, a trade finance loan can give you the cash you need to buy inventory or stock from a supplier in order to fulfil an order. Let’s say you have a confirmed purchase order from a customer and you want to either import stock (or inventory), or export products for resale. A trade finance lender can pay your supplier (in this case the exporter) before you (the importer) receive the goods. 

In addition to raising a loan against your imports, you might also want to discount the invoice and get paid early. 

Business cash advance

This could also be a good option if, for example, you’re confident about your revenue but you’re struggling to get a loan (perhaps because of a poor credit rating). 

A business cash advance is a type of lending that’s based on your future revenue. You’ll also hear it referred to as a revenue loan, a revenue loan or revenue-based financing. It’s useful because the lender takes repayments as a proportion of your revenue. This means that when things are going well, you pay more back each month, but if your business is going through a lean period you pay a smaller amount. 

It’s worth noting that business cash advances are more expensive than bank loans. 

Working capital loan 

Over the past few months we’re seen demand both from businesses looking to invest or fund new contracts and from businesses who need short-term or medium-term loans to help meet their day-to-day operational needs (e.g. paying suppliers, creditors, rent, payroll) out of cash flow. 

We’re seeing a lot of demand in particular for unsecured loans in the €100,000 to €250,000 bracket. Of course you stand a better chance of getting an unsecured loan if your business has a high credit rating, though you might be asked for a personal guarantee. Any lender will look at your historical trading performance and the underlying viability and strength of your business pre-COVID-19. 

Read more about working capital loans here.

Revolving credit line

You might not need it right now, but a line of credit is an easy way to delay cash flow problems and give yourself a bit of headroom. Think of it as an insurance policy. You might be able to get a line of credit using your accounts receivable or your inventory as collateral.  One appeal is that you don’t have to commit to a loan, as you would with most of the government-backed lending.

Re-bridging loan

If you’re looking to refinance an existing bridging loan at a better interest rate, or if your existing bridging loan is coming to the end of its term, you have two options:

• Remain with your existing lender i.e. arrange a loan extension. This could work out more expensive, especially if you have to pay an extension or rearrangement fee.  Also the term may be much shorter than the original loan, so you might be in the same situation again before long…
• Find an alternative lender. Moving your loan elsewhere could be a cheaper and better option in the longer term.

Regional loan funds

The amount of regional funding available from both European and Irish government institutions remains the same and in some cases (e.g. the Northern Northern Powerhouse Investment Fund or NPIF) it’s actually increased during the pandemic. It’s worth looking at these funds, as well as regional growth funds and local enterprise partnerships.

R&D tax credit loans 

There are a growing number of finance providers who can advance funds to you against your R&D tax credit claim. 

If you haven’t ever claimed R&D tax relief from HMRC, you might be eligible if you’re planning to invest in technology and IT systems, new e-commerce websites or other new software. These all come under HMRC’s rather broad definition of “an advance in science or technology”. We’ve helped plenty of businesses claim R&D tax relief as a result of this tax incentive. And you can even claim on unsuccessful projects – or if your business is running at a loss.

The main benefit of an R&D tax credit loan is that you can usually access funds within a week of your first conversation with the lender. By contrast, if you were to wait for HMRC to pay your tax credit, it could take many months (or even a year). 

2. Equity investment

There’s no getting round the obvious impact of the pandemic on the world’s high-growth businesses and, more specifically, on the venture capital and private equity markets. But don’t think that COVID-10 has put the kibosh on all equity investments. It hasn’t – our team has seen growing investor interest in sectors such as EdTech or HealthTech in Ireland, and the numbers show this is the same the world over. 

There are many upsides to selling a stake in your business, not least the additional skills, knowledge and contacts that private investors can bring to your business. Read more about the different types of equity finance here.

3. Make savings on your everyday costs

In the very short term (i.e. today) you can make savings across your cost base, e.g. in banking, foreign exchange, utilities, insurance and broadband costs. 

If you let Swoop help, we can integrate with your bank accounts and find you the best deals. Over the last 12 months we helped 2,582 businesses make total savings of €2,042,991 in bank switching, €611,956 in foreign exchange and €381,911 in utilities.

Here are our top three tips:

• Open another bank account (multi-banking)
  Consider opening an additional account and move the most expensive transactions to it. Some banks, for example, have specialist benefits for businesses that are more digital. It can be done quickly and you won’t miss a direct debit or standing order. (We save our customers on average €1,300 a year with changes to their banking.)

• Change your international payments (foreign exchange) provider
  If you do business overseas that involves sending money to (or receiving money from) foreign bank accounts, consider switching from your main bank to a different provider. Some offer different exchange rates and transfer fees, and in some cases the bank receiving money charges fees. Businesses who have switched their international payments from their main bank to a different provider have saved on average €8,000 over the 12 months with Swoop. Once you’re registered with us we can see whether your business can benefit from switching.

• Change your energy supplier
  We know that some energy suppliers still have excess supply after the mild winter, so now is a good time for businesses to review providers. Swoop can look at your energy bills and bank accounts, put a figure on potential savings, and help you switch provider.

Summary

This is a lot of information to digest. The main message is: if you want your business to thrive – rather than just survive – as you emerge from this pandemic, or if you’re not (for whatever reason) taking advantage of the various government schemes, there are plenty of alternative funding options out there. Whether you need to secure your supply chain, reduce international trading risk, enter new markets, cushion your working capital or invest in growth, you can most likely find the right funding for your business. Especially if you let us help.

I can’t leave with without stressing the importance of monitoring your cash flow weekly, if not daily. If you don’t already use online accounting software, now’s the time! There are lots of different brands but they all perform the same important function of storing all your accounting information in the cloud. This means you can stay on top of your cash flow wherever you are and view cash flow forecasts with a few mouse clicks. And if you’d like Swoop to help you identify possible sources of funding and savings, we can easily integrate with your accounting software. This simplifies – and speeds up – any applications you make.