Managing cash flow when furlough ends in September

18 Aug 2021

Since it was introduced by the government back in April 2020, the Coronavirus Job Retention Scheme (CJRS) has been a lifeline for households and businesses across the UK. However, with the scheme set to end on 30 September, how can business owners manage cash flow in a way that will enable them to retain staff and continue trading?

Cafe staff

Business owners operating across a variety of sectors are continuing to leverage the CJRS following the easing of the majority of lockdown restrictions. The travel and hospitality sectors have relied on the scheme the most, with Treasury figures revealing that around one-third of eligible hospitality staff remained on furlough at the end of May 2021.

When is furlough set to end?

In March 2021 the government extended the CJRS to 30 September 2021, with employees continuing to receive 80% of their salary for hours not worked up to £2,500. 

Until 1 July 2021 the government covered the full 80%. 

However, from July 1 government contributions were scaled back to 70%, with the employer covering the remaining 10%, and from 1 August until the end of the scheme the government is contributing 60% and the employer is covering 20%. 

Businesses have the option to bring furloughed staff back on a part-time basis to allow for “maximum flexibility”. Official data shows that 1.9 million people were still furloughed by the end of June, down from 2.4 million in May. ONS data published at the beginning of August indicates that the number of people on furlough fell to between 1.1m and 1.6m during July.

What are the alternatives to redundancy?

No business owner takes the decision to make redundancies lightly. 

Although redundancies can help reduce short-term employment costs, there are a few things employers need to take into consideration when making the decision. Redundancy payments, loss of key skills and future recruitment costs need to be accounted for. 

Of course, in some instances, making employees redundant is the only viable option. However, there are a few alternatives options to explore. The employee must provide their written consent to any changes – unless their current contract already permits them. 

  • Redeployment:

Employers could consider moving members of staff to parts of the business where there’s more need, either on a temporary or permanent basis. 

  • Lay-offs: 

If the business can’t afford to pay staff due to the increase in furlough contributions or if it can’t keep them on when the furlough scheme is phased out in September, employers could discuss the option of unpaid leave. 

  • Reduced hours: 

Reducing the number of hours an employee works is another route to explore, especially if the business is experiencing a downturn in demand. 

  • Short/long-term pay reductions: 

In certain situations employers may be able to arrange a temporary or permanent pay cut to avoid redundancies, as long as it’s not below the National Minimum Wage.

Can I use a business loan to pay my staff?

If you’re experiencing cash flow difficulties, business finance could provide you with the cash injection you need to retain staff on their full hours/wage when the furlough scheme ends. You may even be eligible for finance under the Recovery Loan Scheme (RLS).

Although the Job Retention Scheme finishes at the end of September, the RLS is set to run until 31 December 2021. It’s specifically designed to help businesses manage their cash flow, investments and growth as the economy recovers from the lockdown.

RLS finance can be used for any legitimate  business purpose, including paying existing staff and hiring new ones. Buying more stock to meet an increase in customer demand and investing in new equipment for growth are also classed as legitimate business purposes.

Apply for RLS funding

Bar staff -

Hospitality industry staff

Types of RLS finance 

When you apply for Recovery Loan Scheme finance, you can choose to receive the funding as a term loan, business overdraft, invoice finance or asset finance facility.

For term loans and overdrafts, between £25,001 and £10 million is available (£30M for a group with a number of subsidiaries). For invoice finance and asset finance facilities, businesses can apply for between £1,000 and £10 million. 

Term loans and asset finance facilities are available for 6 years, and invoice finance facilities and overdrafts are available for 3 years. The amount of cash you can borrow will depend on the scheme’s requirements and the lender’s assessment of your business. 

Finance is available through 60 RLS-accredited lenders.

  • Term loans:

A term loan is a loan from a bank or alternative finance provider for a specific amount. It has to be paid back according to a repayment schedule and has a fixed or variable interest rate.Term lengths range from one to six years. 

  • Business overdrafts:

A business enables you to carry on accessing funds when your balance drops below zero. As with most types of finance, you'll have to pay interest on the amount you borrow.

  • Invoice finance:

Invoice finance allows you to release cash tied up in customer invoices by borrowing money based on what your customers owe your business. There are a few options to choose from. 

  • Asset finance:

Asset finance facilities let you spread the cost of an asset over a set period of time. At the end of the term you can pay the rest off to own it, return it or upgrade to a newer model.

It’s important to remember that the RLS is just one of many business finance options. 

It might be that you’re eligible for a non-RLS loan on better terms. While the aim of the Recovery Loan Scheme is to improve funding terms for businesses, if there’s a loan out there on better terms that doesn’t require the RLS guarantee, you should know about it!

How to find business funding

When you apply for a loan through Funding Options, our Funding Cloud technology validates your profile and matches you with over 120 business finance lenders to help find the best terms for your business.

We’ve been selected by the government-owned British Business Bank as a designated platform to find finance for businesses, and our team of Finance Experts are on hand to help you throughout the process – from navigating the application to receiving the funds. 

If you’re looking to secure business finance ahead of the furlough scheme ending in September, find out what you could be eligible for today. 

Find business assistance

Joe Morley
Joe Morley

Head of Unsecured Lending

Joe has worked in the alternative lending space since 2015. During this time he has helped hundreds of SMEs access millions in essential funding ranging from long-term asset-backed lending to short-term unsecured revolving credit lines and beyond. In his role, Joe manages and supports a large team of Credit Finance specialists.

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