On Tuesday 21 December 2021, the Chancellor, Rishi Sunak, announced £1billion in additional financial support for businesses in the hospitality and leisure sectors. This support is aimed squarely at businesses that have been adversely hit by the rising impact of the new Omicron variant of the coronavirus. Pubs, restaurants, theatres and other venues have seen their takings disappear rapidly as the general public has applied caution and stayed away from public settings over Christmas and New Year – and that’s leading to severe cash-flow issues for many.
One-off grants of £6,000 per business premises are being offered to those hospitality and leisure businesses most affected by the impact of the new variant. But is this enough to help these sectors through the coming months, or is more needed?
We look at the details of the new grants and what they could mean for your clients.
Much-needed funding for the hospitality and leisure industries
The hospitality and leisure sectors have had a rough time over the past two years, and the growing impact of the Omicron variant is starting to have a profound effect on bookings, revenues and the cash position of many affected businesses.
UK Hospitality reported that many businesses have lost 40-60% of their December trade, at a time when many clients should be seeing their busiest and most profitable month of the year. These stark figures have led to industry leaders calling for urgent additional financial support, with the aim of getting businesses through a winter that’s likely to be low on revenues.
It’s certainly great to see the Government listening to the industry and taking positive action to support these important industries. In 2019, hospitality made up 3.0% of total UK economic output, and in 2020 there were 2.38 million jobs in the UK hospitality sector. Ensuring that businesses stay solvent, operational and able to employ their workers is vital to the UK’s economic recovery – so action was needed to provide a cash injection.
What’s in the support package?
So, the Chancellor has listened to industry leaders and has seen the urgent need for financial support. But what’s actually in this much-needed support package?
Here’s what will be included for affected businesses:
Businesses in the hospitality and leisure sectors in England will be eligible for one-off grants of up to £6,000 per premises, plus more than £100 million discretionary funding will be made available for local authorities to support other businesses.
Government will also cover the cost of Statutory Sick Pay (SSP) for Covid-related absences for small and medium-sized employers across the UK.
£30 million further funding will be made available through the Culture Recovery Fund, enabling more cultural organisations in England to apply for support during the winter.
Will clients welcome a free cash injection?
If you have clients in the hospitality or leisure sectors, you’ll know the cash-flow struggles they’ve had over the course of the pandemic. During each lockdown period, these clients have had to deal with severe drops in revenue, uncertain sales forecasts and a rapid drop in their cash reserves – and this has left many businesses in a highly uncertain cash-flow position.
In the current economic climate, no client is likely to turn down £6k of free grant money. It will bolster their cash position to a degree, and having SSP costs covered by the Government will take some pressure off when it comes to payroll costs for employees that have tested positive for Covid and are unable to work. The big question is whether £6k is enough to make a meaningful difference – only time will tell on that score.
Will a £6K one-off payment have the desired effect?
Sam Holliday, of the Bristol and West Federation of Small Business, was quoted by BBC News as saying that the support package was ‘good news’ but probably didn’t go far enough in supporting the worst-affected businesses:
"We know that a lot of businesses will benefit from this [support package]. Is it enough? Probably not. Will it get to all the businesses that need it? Definitely not. But it's certainly a step in the right direction."
The reality is that many smaller businesses won’t receive the highest amount and for the larger companies, £6k doesn’t stretch that far. For larger hotels, £6k is unlikely to cover one months’ payroll costs, and big restaurants will certainly spend more than this on their monthly food bills to suppliers. As local authorities need to set up and administer these latest schemes, it’s unlikely that the cash will reach bank accounts until later in January or February, meaning business owners still need to find funds now for payroll, suppliers and rents.
Reaction from pub owners and hospitality business leaders has been muted, with many unhappy with the depth and size of the support package. One publican described the grants as ‘sticking an elastoplast over a gaping wound’, so it’s open to debate as to whether these measures will be enough to make a meaningful difference for your clients.
Combining grants with other routes to funding
Having the option to apply for this grant is certainly a helping hand if your client is struggling to keep the lights on in the business. But this is a short-term solution to a much bigger problem, and it’s highly likely that the most badly affected clients will need other routes to funding.
So, what other options do these businesses have?
Recovery Loan Scheme – the government-backed Recovery Loan Scheme is still available to qualifying businesses until June 2022, and would allow viable hospitality and leisure businesses to borrow up to £10million on very attractive terms.
Merchant cash advance – if poor cash flow is the issue, a merchant cash advance could be a useful short-term fix for hospitality and leisure clients that take card payments. Getting an advance against future card sales could well help to restore that positive cash balance and get clients through the lean times.
Instant Offers with Funding Circle – fast and straightforward access to a business loan may well be a good solution for some clients. Our new Instant Offers partnership with Funding Circle allows you to offer clients instant decisions on finance of up to £100k, straight from your firm’s website.
Proactive spend management – bringing in additional funding is an obvious way to rebalance the cash-flow scales, but cutting down on the clients’ cash outgoings can also help considerably. Looking at renegotiating prices with existing suppliers, opting for more cost-effective new suppliers or cutting down on staffing overheads can all help to cut expenditure and provide more cash in the pot.
Helping clients set the foundations for a prosperous New Year
It’s undeniable that the hospitality and leisure sectors face a challenging winter and an unpredictable start to 2022. But whatever the coming months throw at your clients, they’ll be building on more solid foundations if they can sort out their cash position and overall funding.
Talk to your pub, hotel, restaurant and leisure clients as soon as possible, and find out exactly how they’re doing and what their key financial challenges are. Applying for this Additional Restrictions Grant will offer a short-term solution, but it’s vital to apply as soon as your local scheme is open and to bring these funds into the business ASAP.
Where the grant won’t be enough to turn around their fortunes, talk to clients about the other available routes to funding and how you can help to bring extra cash into the kitty.
If you’d like to know more about the Recovery Loan Scheme, merchant cash advances or our Instant Offers solution with Funding Circle, please do get in touch for a chat.
Call us on 020 3696 9700