Rishi Sunak was on his feet for 51 minutes when delivering his budget on 3 March, and for the majority of that time he was setting out policies that would have given UK business owners cause for hope: furlough extended to September, business rates relief extended into next year, restart grants and a new government backed loan scheme.
On a closer look however, UK SMEs are facing many problems that the Chancellor didn’t fix. Problems that still wouldn’t have been resolved with policies two or three times as generous.
The biggest problem is debt. According to statistics published by the Bank of England, over the 8 years to December 2019 net bank lending to businesses increased by £27bn, an average of around £0.3bn per month. March 2020 alone saw an increase of £34bn – over 100 times the monthly average.
The same statistics report that for each month from July 2020 onwards, net lending to SMEs was more than 20% greater than a year earlier; for the 7 years prior to 2020 this figure had never risen above 2.1%.
With credit terms stretched and government backed loan schemes already taken advantage of, the balance sheets of many SMEs simply cannot take on any more debt, and they need to build up cash flows to service those borrowings. Unlike larger listed businesses, SMEs rarely have access to capital as most owners don’t have the liquid personal wealth available to invest.
It’s no fun presenting this bleak position and I’m not surprised that Rishi adopted such a positive tone as his every word was beamed across the country. However, at some point this year many SME business owners will need to come to terms with their portion of the debt mountain that’s emerged in the UK economy and acknowledge that the books no longer balance.
Tools are available to deal with excess debt. Moratoriums will secure breathing space for many while a rescue plan is executed, CVAs will give businesses and their suppliers the stable footing needed to enable them to continue to trade together, and administrations will be used to keep businesses alive, if not companies.
The UK’s rescue-focused restructuring regime really is world leading and, providing advice is sought in a timely manner, will prove to be the key component of solving the big problem Rishi didn’t spell out.