This week, Rishi Sunak launched a new “Business Bounce Back” loan scheme to help Britain’s struggling SMEs amid growing concern over their inability to access the Treasury’s pre-existing rescue packages.
The Chancellor’s new lending programme is backed by a 100% taxpayer guarantee and aims to ensure that SMEs on a knife-edge due to the ongoing lockdown get the financial support they need.
While the government should be commended for trying to address the failings of the existing economic rescue packages for SMEs, our latest research at Buckworths suggests that this week’s announcement may be too little too late.
lockdown has spread instability and insecurity across the UK economy
We surveyed 500 SME owners and decision-makers to gauge attitudes towards the government’s response to the coronavirus crisis. And the results clearly showed that while the ongoing lockdown has succeeded in stemming the tide of COVID-19 infections, it has also spread insecurity and instability into every corner of the UK economy.
Over a quarter (27%) of SMEs don’t think the government’s support scheme is enough to help them survive the impact of COVID-19, while nearly 20% of owners admitted their business could not survive longer than a month without a boost to their cash flow.
Whilst this figure for the whole of the UK is shocking, our research suggested that the economic impact of COVID-19 will be most severe in the poorer regions of the UK. For example, 62% of SME owners in Northern Ireland said that they would have to close the doors in four weeks without further economic support, with 31% and 30% of SME owners in the West and East Midlands agreeing.
With such widespread economic disruption and SME closures expected, it is likely that Boris Johnson’s plans to level-up the UK economy will be toppled before they even begin.
impact of rent on struggling SMEs
But the financial hardship created by the lockdown is being compounded by a lack of help from landlords, with almost a fifth (19%) of British SMEs in the retail, catering and hospitality space having a rent holiday denied. In fact, only 14% of SME owners felt that their landlord was understanding of the impact of COVID-19 on their business and granted them a rent holiday on their commercial lease.
Businesses that cannot trade are slowly dying and the biggest overhead for most of them – particularly in the restaurant, hospitality and retail sector – is rent. These businesses need rent holidays as soon as possible!
Although a rent deferral has been mooted as a solution, it will not help any business that has seen its revenues decimated by the coronavirus crisis. All it means is that these SMEs will fail in a couple of months, rather than right away.
The government will soon be faced with a stark choice – impose mandatory rent holidays and bail out landlords or end the lockdown and allow these businesses to start trading. Further dithering and delay will result in mass insolvencies across the restaurant, hospitality and retail sectors.
the government shouldn’t pursue a lockdown extension
The UK government has been largely on the front foot through the coronavirus crisis, announcing measures – such as furlough – almost before business and the markets had formulated their response. But as time has worn on its become increasingly clear that the government is now on the back foot, reacting to pressure from business and the media to end the lockdown.
The lack of clarity or guidance from the government on the post-COVID-19 landscape is spreading uncertainty like wildfire amongst Britain’s SMEs. Nearly two-thirds of small business owners want to be back at work without restrictions by the end of May. This, and the other results mentioned, represent a simple message from business owners – if the lockdown continues, some SMEs won’t.
With so many SMEs – particularly those in the retail and hospitality sectors – already saying that they are on life support, an extension would be the equivalent of pulling the plug. Not only would it devastate the UK economy and create a record spike in unemployment, but it would also lead to so many business closures that a return to normal pre-COVID-19 society would no longer be a feasible option.