A new four week lockdown in England lands this Thursday. The Chancellor has announced the return of 80% furlough payments to the end of the year to help preserve jobs, but what of the interruption to the revenues of SMEs and the self employed? As in the spring lockdown, these are about to be devastated again, with the cashflow implications becoming more severe than the first wave given the lack of a widely distributed ’V’ shaped recovery.
For business looking at funding a further cash flow shortfall, the options are more onerous and expensive. Businesses that borrowed the maximum they could on BBLs can only access more government assisted borrowing by substituting inexpensive BBLs loans with more expensive CBILs lending.
The cliff edge effect of this is marked, doubling the cost of borrowing and pushing the marginal cost of loans well in to double digit territory.
Banks will prefer this, margins are commercially viable on CBILs, much more so than on BBLS. Will Richi Sunak raise the amounts that can be accessed under BBLs? Capped at 25% of turnover or £50k, the evidence is that these loans have been used fully already. Without action to increase the levels of borrowing on the scheme many companies will simply run out of cash as the new lockdown bites.
The chancellor is in a bind. Doing nothing now will risk large scale default on the first wave of lending as the lockdown kills businesses, and doubling down risks a bigger problem down the line.
A delivery of a second grant to businesses which have offices but don’t pay rates won’t help, many have vacated their leases and others were excluded. A new policy, based on the number of people taken off furlough by smaller companies over the past few months, would back businesses that have shown they can recover post lockdown and is an option under consideration. However the largess of the treasury is going to be restricted, not least, as we enter five or six months where heavy forms of lockdown will continue emptying coffers that are not refilling.
The current situation cannot stand unchanged without catastrophic consequences. The question is whether companies can wait long enough for an announcement of new measures, and whether the new deal will be adequate enough to work and can be delivered by the banks in time.