Rishi Sunak announces £330 billion of help for UK businesses. Though a vast package, is offering loans the best way to support SMEs?
A recent press conference saw Chancellor Rishi Sunak announce new financial measures to bolster the UK economy, including further funding for small businesses, following on from the £12 billion support package committed during the Budget last week.
The new measures include a £330 billion scope for loans for struggling firms, regardless of their size, and loans of up to £25,000 for businesses in the hospitality and retail sectors. The business rates holiday has also been extended to 12 months for firms in these sectors. Small businesses are also able to apply for loans of up to £5 million, with no interest due for the first six months.
Although the Government’s efforts to support small businesses are admirable and will undoubtedly go far to help, they are ultimately too short-term, say business commentators. We round up the latest responses from the SME world below so you can figure out how to make the most of this funding package.
“Whatever it takes”: Is this the right strategy?
Duncan Swift, president of insolvency and restructuring trade body R3, says the measures to support businesses during the COVID-19 outbreak is positive, but more needs to be done to make sure smaller players don’t go into insolvency during this period of uncertainty –particularly with cash flow.
“The Chancellor’s ‘Whatever It Takes’ strategy is the right one, but businesses do need help now, and other types of help are needed alongside the additional access to finance announced today,” he says.
Feedback from R3’s membership is that otherwise healthy businesses are already experiencing a cash flow crisis. According to Swift, many businesses will face insolvency without significant creditor forbearance or direct help from Government to bridge the gap in their finances.
“It’ll be expensive, but Government intervention is needed to weather the storm. As well as additional money going in to businesses, payment holidays for businesses on things like PAYE, NICs, or other taxes will help manage outgoings, too.”
According to Caroline Plumb OBE, CEO and founder of tech firm Fluidly, small businesses will welcome any support they can get whilst facing this “perfect storm”, but even in less uncertain times SMEs were struggling to get paid on time and managing their cash flow.
“The biggest cost for most SMEs is payroll and if revenues fall, that will force small employers into difficult decisions,” she says.
“Prior to coronavirus, one in five SMEs were already in their overdraft, that’s one in five with no cash in the bank. Offering loans for short term protection doesn’t resolve the longer term challenges SMEs face in the UK and they will, in the future still have to pay these loans back at a time that doesn’t guarantee they will be in better position to do so.”
Shoring up for debt?
“The focus on loans could store up problems later: these loans will need to be paid back. Grants for small businesses will help, but larger businesses aren’t immune to the impact of COVID-19,” Swift explains.
“The first step any business in difficulty should take is to seek professional advice. There are options out there.”
“Speaking to creditors will also be key, and the earlier businesses do this, the earlier they may be able to rearrange payment terms.”
Once this immediate relief is over, small firms will find themselves inundated with a build-up of debt, says Luke Davis, CEO of private investment house IW Capital. According to Davis, this highlights the need for business grants over debt.
“In unprecedented times, the Government have announced unprecedented measures to combat the impact of COVID-19. The gargantuan amount of £330 billion to support UK businesses will go far, however the nature of this money – promised in the form of loans – is only enough in the immediate interim,” he says.
“The six month interest rate break offered on these emergency loans is helpful, but after this time SMEs will find themselves swimming in debt.”
Many startups and scale-ups will be operating at a loss already, as is the nature of these types of businesses within their formative, foundation years, and many will also have a backlog of historical debt, Davis adds. Taking out a new loan now will provide temporary relief; however ultimately their debt will simply compound. “The Government perhaps should have offered assistance by way of providing further cash grants rather than loans.”
There are three stages to be addressed in this crisis, according to Davis.
- Managing the effects of the immediate impact
- The recovery phase
- Eventually, the growth phase.
Here’s where private investors can, and should, help small businesses through all of these stages.
“Financially, this is a testing time, and small businesses are fragile to say the least,” says Davis. “They stand to take the biggest blow following the epic impact of COVID-19 and – although this much-needed cash injection from Sunak will be of assistance – beyond this period, the entire community of private UK investors will need to pull together beyond the period of immediate recovery.”
Urgent measures needed: A call from SMEs
- Guidance on how businesses can apply for Business Interruption Loans as soon as possible.
- Extend rate relief to medium and large businesses, not just to SMEs.
- Corporation tax, VAT, PAYE and other tax payments should be deferred for a minimum of 12 months.
UK tourism sector: What to expect
The inbound tourism industry contributed nearly £23bn to the UK economy in 2018, making it the UK’s 5th biggest export earner and the third largest employer.
With the current situation, however, the travel and tourism sector is the first to get hit with declining sales, mass lay-offs and general uncertainty.
UK travel trade association UKinbound, which represents over 400 tourism and hospitality businesses, has written to chancellor Rishi Sunak asking for aggressive and urgent Government intervention to protect the industry from the devastating effects of COVID-19.
In addition to the wish list above, the trade body asked the Chancellor for clarity and made recommendations on:
- Employees in tourism and hospitality who have been temporarily laid off, forced to take unpaid leave or put on reduced salaries should be compensated (as other European countries such as Germany, France and Denmark are doing);
- Suspend the requirement for tour operators to refund customers who cannot travel and instead issue credit notes valid for 12 months – cancellations affect the entire supply chain and other European countries are about to enforce this measure.
“These are desperate and unprecedented times and the only way of ensuring the survival of our vital industry, that employs one in 12 people across all parts of the UK, now is with Government support,” Joss Croft, CEO of UKinbound says.
“The UK’s tourism and hospitality industry simply has no revenue stream or working capital with which to sustain itself, and so we hope that the chancellor’s announcement today about further financial support for the economy will include our sector.”
“Additionally, any support packages must be rolled out and available immediately with absolutely clear guidance,” adds Croft. “Tourism businesses have days, not weeks, in which to survive.”
Statutory sick pay and workforce strain: What does this funding package include?
In the event of having to self-isolate due to COVID-19, the laws around sick pay have changed. Chancellor Sunak has confirmed in his first Budget on 12 March that employees will be entitled to Statutory Sick Pay (SSP) from the first day they take off work, not the fourth, as it was previously in order to self-isolate for the first 14 days. The government will reimburse small employers employing less than 250 employees to assist them during this period.
A notice confirming the need to self-isolate can be obtained from GP surgeries (but the patient should telephone through, not attend the surgery in person) or the NHS 111 service.
However, there is still some confusion about how this affects gig economy workers, freelancers, self-employed workers, and workers who do not earn enough to qualify for SSP, says Joanne Wright, legal executive, HR & Employment at Hudgell Solicitors.
“The Chancellor has confirmed that the government will look at supporting those who do not qualify for SSP through the benefit system,” she adds.
“He said that those on contributory employment and support allowance will be able to claim from day one instead of day eight to make sure that time spent off work due to sickness is reflected in their benefits and he is temporarily removing the minimum income floor in Universal Credit.”
If you are not sick yourself but need to take time off to look after a dependent who is, ACAS provides guidance stating that employees are entitled to time off work to help a dependent.
They confirm that this also applies in the case of a child needing to go into isolation due to coronavirus. “At present, there’s no statutory right to pay for this time off, although policies will vary from company to company,” she adds.
“It seems unlikely that any new laws will come in regarding imposed self-isolation, unless the spread becomes out of control and the public are disobeying a government request to stay indoors.”
If a person does obtain a written notice to self-isolate but does not comply, or an employer suspects an employee may have come into contact with the virus, they can turn them away from work as they have a duty of care to protect the workforce. “If the employee still refuses, it could become a disciplinary matter.”
As part of a £30 billion coronavirus package, the Chancellor has also announced support for small and medium sized employers (250 employees or fewer) by refunding eligible Statutory Sick Pay.
Refunds will be limited to two weeks for any employee who has legitimately claimed SSP as a result of COVID-19.
“This announcement will come as a welcome relief for small and medium sized employers who undoubtedly will experience financial hardship as a result of the virus,” says Kirsty Rogers, employment partner at DWF.
“The government has set out in the 2020 Budget a clear priority of protecting people’s jobs. Whilst protecting the health and safety of the population is undoubtedly the number one priority; keeping the economy stable is also critical,” she adds. “Providing employers with this assistance is undoubtedly a step in the right direction.”
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