On Monday, the Treasury announced it would extend its emergency business loan scheme to allow small businesses to “fill” their borrowings to help businesses survive the lockdown of new English (and perhaps the UK-wide) communities.
According to new amendments announced by the Prime Minister, companies will be required to apply for loan schemes that include bounce back loans (BBL) and Covid business suspension loans (CBILS and CLBILS) until the end of January. This two-month extension will also be knocked back on the date from the end of November and will also apply to the startup-oriented Future Fund. On Twitter, Rishi Sunak said:
To help more companies access additional support, the deadline for applications for government-supported loan schemes and future funds have been extended further until January 31, 2021. pic.twitter.com/uhrzztqkxq
-Rishi Sunak (@Rishisunak) November 2, 2020
Top-up means that companies that already claim some of their low-interest loans can borrow more money, and are designed to support companies that previously borrowed less than the maximum amount (up to 25% of sales up to the £50,000 cap).
So far, the Bounce Back Loan scheme has allocated between £40.2 billion and 1.3 million UK companies, and a new survey from EY Item Club highlights that business borrowings will be more than five times the previous year in 2020.
This highlights the first problem. This, according to Douglas Grant, director of Conister, said, “The UK’s latest lockdown measures will sadly be the last claw in the co, for many businesses that are unable to receive capital quickly enough. So we are determined and absolutely focused on protecting these robust businesses operating in a sector that is resilient and ultimately stronger with capital needed in the long term.”
“Conister received an initial allocation limit of £10 million in the BBLS scheme. So far, it has received 4,607 applications totaling £162,739,000. Without a doubt, the size of applications is enormous, while SMEs are the lifeblood of the economy and a place where innovation and creativity occurs, while it is important that resilient businesses are given priority and allow them to mark new normal business models.”
So, in Connister’s view, the key issue is that the loan needs to focus on the most viable business. The issues that many people place with that approach are politically intuitive. Support loans are not considered handouts and are a prerequisite for lockdown. As we saw in northern England, if it doesn’t provide anything that could be considered sufficient support, then lockdown policies will resist and will likely be widely ignored. In this sense, it makes sense to extend the loan scheme. Because it provides businesses with the minimum business they need to close their doors.
The second and perhaps more pressing issue is one raised by analysts at Positive Money, a nonprofit research group. The organization says it is forced to assume all debts that are trapped in the cynical transfer of wealth from small businesses while being forced to assume more debts to survive.
Commenting on the extension of the bounceback loan scheme, Franboit, executive director of Positive Money, “We need to be wary of the sudden and keenness of wanting to build up more debt to banks’ small and medium-sized businesses.
“It’s not the right way for many people to help the fight at this point that many debts are not the right way to help them fight. The debt must be for investment, but emergency assistance should take the form of grants and other direct support.”
It may argue that the UK would adopt a Swiss model based on the UK’s bounceback loan scheme. The fact that Swiss interest rates are not charged to Switzerland’s 2.5% interest rates could result in faster recovery in small businesses’ balance sheets after Covid.
