CCO at Countingup
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Small businesses will need more than Sunak’s Covid bailout

Countingup CCO Andrew Garvey shares insight into what the editions to the coronavirus loan schemes, announced last Thursday, will mean for small businesses.

29th Sep 2020
CCO at Countingup
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Chancellor of the Exchequer Rishi Sunak holds a Covid-19 Press Conference in 10 Downing Street. Picture by Pippa Fowles / No 10 Downing Street.

On Thursday (24 September), the Chancellor announced a set of new measures designed to help businesses survive the new Covid-19 lockdown measures.

One of the eye-catching measures was the increase in the forbearance measures that will be available in relation to the Covid-19 loan schemes. 

Businesses who have borrowed under one of the schemes will now be able to extend the repayment term to 10 years (up from 6) and request that repayment is made on an interest-only basis. The Chancellor also extended the deadline to apply for these schemes to 30 November 2020.

These schemes have seen over £53bn borrowed by UK businesses. The largest scheme by size is the “Bounce Back Loan Scheme” (BBLS), which has seen the 1.1m of the smallest businesses borrow £35b. What’s unique about this scheme is that it’s 100% guaranteed by the UK government.

The forbearance measures introduced by the Chancellor are pragmatic. If we’re facing up to another six months of lockdown restrictions then this is clearly going to make life hard for our smallest businesses. It is increasingly apparent that certain sectors are struggling more than most – notably hospitality and leisure and bricks and mortar retailers. 

Businesses in these sectors will undoubtedly need a lot of support if they are to survive. The Covid-19 pandemic could not have been reasonably foreseen by the owners of these businesses. Running these businesses is incredibly challenging during normal times. Many hospitality and retail business owners work long hours to keep their heads above water and their employees in work.

For these business owners, making sure that they and their employees have at least a chance of returning to some sort of normality post-Covid seems the right thing to do. 

A few of our high street banks are only still in existence because of government support following a problem of their own making. Helping some of the millions of small business owners through a crisis that actually wasn’t of their making is likely more palatable to most people than that bailout.

Where the extension of the scheme may cause problems though is where they have been used by businesses who haven’t been affected by Covid-19. Most of us will probably have seen the number of delivery vans increase in their locality as people turn to online retail.

In my street alone at least three houses are having extensive renovation work done. For those with equity in their homes, the cheap mortgage rates are likely a great time to carry out this work. Anecdotally quite a few friends who are small business owners (not in retail or hospitality) are telling me they have never been busier.

However, all businesses can access the coronavirus loan schemes. Many of them have done so as raising 50% at 2.5% with 12 months interest-free is a great offer. This stockpiling of debt by good businesses will undoubtedly make it more difficult for SME lenders to originate loans at a commercial rate for at least 18 months in my opinion. This may have a negative impact on the number of competitors that operate in this space. 

My main concern is that many of the struggling businesses that are kept afloat as a result of cheap debt will act as a drag on the economy. More importantly, many of the owners of these businesses who are some of the most committed and creative people we have in the UK may end up spending 10 years of their lives paying back a Bounce Back Loan when they’d have been better off looking at doing something else. 

I think the government and tech firms could do more to educate businesses in the affected sector on how to react to the new normal. Bricks and mortar retail was struggling against online retailers pre-Covid. Why doesn’t the government partner with some big tech companies to help these businesses create websites and learn how to use digital ads? If they have already done this it could do with more publicity.

It is both morally and economically the right thing to do to help small businesses through a crisis that is not of their making. For that reason, these measures should be welcomed. It is important to realise though that it is likely that small businesses and the people that drive them are likely to need even more support.

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