Sunak has announced, after much criticism from business advocacy groups and even the ever vocal but legislatively impotent (within our two-party system) Labour party – with the aim of pressuring Sunak to keep supporting small businesses beyond April – that the Bounce Back Loan Scheme (BBLS), having lent out £45 billion to 1.4 million small UK companies, that is up to £50,000 to each company, will re-calibrate its repayments schedule from the original six years up to a full decade. This is in the hope of staving off the threat of widespread losses of small businesses severely struggling following the Covid pandemic and the government’s subsequent national lockdowns and periods of localised lockdowns.
Under the newly unveiled ‘Pay as you grow’ scheme (anyone who managed to slip in that cheesy hyperbole should, in any self-respecting nation, be removed from his or her position immediately and escorted out of the building) the Chancellor aims to offer, alongside the extra four-year period of repayment, up to three six-month payment holidays or interest-only repayments, which would reduce the total monthly repayments to around £100 for businesses who borrowed the full £50,000 on offer, albeit by increasing their payments in future.
As mentioned, the ‘Bounce Back Loan Scheme’ has provided 1.4 million small businesses with loans totalling £45 billion (equivalent to just over one year’s government deficit during 2019, down from previous years) or up to £50,000 each to companies eligible to receive these one-off, low interest and state-backed payments. For a company receiving the maximum £50,000 loan offered, the repayment extension would effectively reduce monthly repayments from roughly from about £940 to £460.
Ultimately, it is the banks that are lending the money, and after a year of interest free repayments, borrowers will have to start repaying with interest, starting in May 2021. No sane person could have reasonably expected us to have recovered from this crisis within a year back in May 2020, so there is a fear that the businesses indebted to the scheme will simply be unable to pay, even at the lower rates offered by the payment extension, which could mean that the very scheme intended to help them, possibly having even led them to a false sense of security, with its optimistically named ‘Bounce Back’ tag, in fact leads to their bankruptcy, with some senior insiders in the banking sector uneasy about the ability of firms to pay back loans when they return from the pandemic in a much depleted state, and with the return of customers likely to be painfully slow as people are still afraid of the emergence of new strains of the Covid-19 disease that has caused, directly and indirectly, so much death and financial carnage.
From Monday 8 February, banks will begin to contact the first business customers to have taken out the ‘Bounce Back’ loans about the new ‘Pay as you grow’ scheme, according to government officials and banking executives. Concerns have been raised that the extension from 6 to 10 years will only prolong the suffering of businesses, with the already financially stressed firms now destined to struggle under the debt repayments for a longer period of time, with some reports that bankers are warning the UK could end up with huge numbers of so-called ‘zombie companies’ – small companies that are just about able to survive but lacking the resources to innovate, invest or grow, especially important with the burden of their debt repayments. Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, was naturally more optimistic: “While our vaccine rollout is moving at an incredible pace and the end is in sight, we know times are still tough for many companies and extra support is needed.
These flexible repayment options will give businesses the time they need to recover from the pandemic before paying back loans, giving them the breathing space and confidence to build back better.”
The British Business Bank, appointed by the government to oversee the Bounce Back scheme on its behalf, believes that the new extension will take some burden off companies that are struggling, but they would say that.
Speaking to The Guardian, Dr Adam Marshall, director general of the British Chambers of Commerce, said: “The Bounce Back Loan Scheme has been an important lifeline for many small businesses during the pandemic.”
He added that flexibility had a “crucial role to play in providing firms who have received a Bounce Back Loan with much-needed headroom to manage their repayments through this continued economic storm”.
In a potentially more effective measure initiated by the chancellor, he has just proposed an “Amazon Tax” on the big online retailers who have stayed open throughout the pandemic and have seen their profits surge during the past year or so. Companies like Amazon, Deliveroo, Ocado and Asos, who have all seen massive increases in their profits during the pandemic and government-mandated lockdown periods, look set to pay a new “excessive profits tax” – a much belated move in a time that has seen the largest redistribution of wealth in modern history. With that being said, there are concerns that these taxes could end up hitting smaller online firms too, with Tech Nation chairman Stephen Kelly, speaking to the Evening Standard warning that the government “shouldn’t be looking to impose taxes that big tech companies like Amazon will ultimately pass onto the small and medium businesses trading on their platforms.”
Whether you run a bricks and mortar business or are based online, at Optimal Compliance we have a number of solutions that may help you, especially in these difficult times. You can take a look at our Coronavirus Support portal here.