Almost a fifth of all the UK’s small businesses will collapse in the next month, despite the government’s current support measures, it is feared.
According to accountancy group the Corporate Finance Network, the current coronavirus lockdown measures mean that 18 per cent of all SMEs will have to close within the next four weeks, putting around 4m people out of work.
If the lockdown were to last for three months, almost a third of such businesses could cease trading, a survey of 13,000 firms suggested.
The findings come despite a suite of measures put in place by chancellor Rishi Sunak to protect firms of all sizes, including Coronavirus Business Interruption Loans (CBILs) of up to £5m.
The chancellor said that “any good business in financial difficulty who needs access to cash to pay their rent, the salaries of their employees, pay suppliers, or purchase stock, will be able to access a government-backed loan, on attractive terms”.
However some firms have told the BBC that banks have refused to give them emergency loans despite the government’s commitment.
According to Carole Stockman, chief executive of the Association of Corporate Treasurers, many firms who have been hit by coronavirus are being told to apply for normal commercial loans, requiring some form of securitisation or guarantee, rather than the government’s new scheme.
Stockman said: “There is also a fear factor at play here. Businesses will naturally be anxious when they hear that after a year, an interest-free loan might become subject to interest rates of up to 20 per cent”.
Oliver King, a solicitor at Langleys, said firms should check the type of loan they are signing up to before borrowing against their personal assets, as many have unnecessarily secured personal assets to the future of their business:
“It is essential that any small business looking to benefit from the government’s support programme looks into the details of the loan scheme being offered by any lender, extremely carefully.
“If directors are in any doubt then they should take immediate legal advice on the implications of the terms being offered to them”.
A spokesperson for industry body for the UK’s banks, UK Finance, said:
“Lenders are working hard to get financing to all businesses who need it as quickly as possible and are using the Coronavirus Business Interruption Loan Scheme (CBILS) where appropriate, with some funding having already been provided under the scheme.
“CBILS is designed specifically to support those viable SMEs who cannot meet a lender’s commercial lending requirements including where insufficient assets are available and lenders cannot use the scheme if they are able to lend under their normal criteria.
“All lenders will take into account a business’s individual circumstances when considering applications and many business loans can be provided either unsecured or secured only on business assets.”
Steve Lord, who runs Belgrave & Powell, an engineering firm which makes parts for aerospace giant BAE Systems, told the BBC:
“I was heartened and astonished to see the unprecedented help that was announced by the government two weeks ago.
“But we put one of our most senior people on it and as each day passed it was disappointment after disappointment.”
Some of the approved lenders, he added, were offering loans with rates of up to 30 per cent.