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Save SMEs now with a government-backed permanent loan scheme

Written by Douglas Grant on Wednesday, 15 June 2022. Posted in Politics, Funding, Analysis, Finance

As inflation continues to rise and GDP growth begins to slow, Douglas Grant, Manx Financial Group’s CEO, says it is time for the government to step in and introduce a permanent loan scheme to support SMEs.

Save SMEs now with a government-backed permanent loan scheme

As inflation continues to rise and GDP growth begins to slow, Douglas Grant, Manx Financial Group’s CEO, says it is time for the government to step in and introduce a permanent loan scheme to support SMEs. 

Last month’s inflation announcement – which saw the Consumer Price Index (CPI) hit 9% – was another major blow for small and medium-sized enterprises (SMEs) and should come as a wakeup call to just how difficult the remaining half of the year is set to be.

In practice, this means that SMEs will start feeling the pressure of increased labour and materials costs at the same time consumer spending decreases. This spells a decrease in revenue and, in turn, a demand for increased liquidity – which has already reached unprecedented levels – as businesses desperately require working capital to counteract rising interest rates, supply chain issues, increases in wages and additional pandemic-induced problems.

What’s more, as the cost of borrowing is also set to increase, small businesses are fighting for their very survival.

Government intervention

The UK government has already successfully deployed multiple financial relief schemes aimed at small businesses, which acted as critical lifelines during the unprecedented economic conditions seen in the Covid-19 pandemic. These included the Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Recovery Loan Scheme (RLS).

However, it is now time for a long-term scheme for businesses to leverage. 

A government-backed permanent loan scheme, where collaboration is involved with both traditional banks and alternative lenders, would be a vital way to guarantee the future of the UK’s SME community and to ensure the success of the emergency initiatives are not wasted. It would help SMEs during their various stages of tipping points – where some are teetering between failing and surviving and others are between surviving and thriving. 

This said, the government should be careful not to support every single SME but instead only those that are both nimble and resilient. When loans are granted, they need to be issued on the basis that the company has a realistic chance of survival in a post-pandemic Britain and it is only now, with harsh market conditions, that they are in need of assistance. We should be careful not to produce any more zombie-like businesses, surviving only to eventually fall of a debt default cliff. SMEs will need to be well-advised to take stock of their current capital structure and, if appropriate, access fixed term, fixed rate loans to prevent additional exposure to an increasingly volatile lending market. 

Assisting SMEs with a permanent scheme will power the economy’s resurgence – something the government is keen to find solutions for. The scheme could act as the fundamental difference between make or break for many small companies and in turn, our economy.

About the Author

Douglas Grant

Douglas Grant

Douglas Grant has over 30 years’ experience working in finance, initially with Scottish Power, before moving to the industrial sector to work with ICI and then Allenwest. Prior to joining Manx Financial Group PLC, he was finance director of various UK and Isle of Man private sector companies and has extensive capital markets experience. He is a professionally qualified banker with an executive MBA.

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