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Small businesses the biggest gap in Government strategy

20 April 2020: while Government measures to aid the UK economy are showing promise, more needs to be done to get cash out to small businesses, says ICAEW Chief Executive Michael Izza.

The Chancellor of the Exchequer has promised to do whatever it takes to help businesses cope with the economic consequences of COVID-19.

Some measures are showing promise. At the upper end of the economy, the Corporate Finance Facility may suit many larger companies, and the launch of the Coronavirus Large Business Interruption Loan Scheme, aimed at medium-sized business, looks like a constructive measure. Also, today we will start to see if the Coronavirus Job Retention Scheme is going to do what it says on the tin. The Self Employment Income Support Scheme is good as far as it goes, but seems a long way off and currently misses too many deserving cases – although we are now seeing some coverage for start-ups. A suite of smaller programmes such as rates relief, VAT deferral, business support grants, changes to statutory sick pay, protection against eviction and the easing of insolvency regulations are all helping.

But more still has to be done to get cash out to small businesses: for very many of them, including ICAEW practices, the situation is becoming critical. Viable businesses will fail without liquidity and they are simply drying up. We believe Government needs to do three things.

Enhance CBILS

Many of our members and the businesses they advise are facing serious difficulty accessing funds through the Coronavirus Business Interruption Loan Scheme (CBILS). The banking system is not designed to deliver a stimulus package at the scale and pace this crisis demands, and the time has come to consider how it can be further improved and complemented by other mechanisms.

Extending the Government guarantee to 100% – particularly for SME loans – would reduce risk to banks and may help accelerate the transfer of funds. But without thorough underwriting, the risk to taxpayers and borrowers would increase. Government needs to balance credit risk and potential loss of public funds with damage to the wider economy caused by lack of cash. Even with a larger guarantee, banks would still bear responsibility for chasing and collecting payment.

More short-term finance should also be introduced to CBILS. The scheme is currently delivering long-term debt, but businesses that need short-term cash would benefit more from extended overdrafts and other short-term funding than from a loan paid back over years.

Get grants to those that need them

An improved CBILS is necessary but not sufficient. Direct grants should play a significantly greater role in Government's strategy, although we are pleased this morning to see the first steps being taken in that direction. Under current conditions, it is not surprising that many SMEs are reluctant to take out loans requiring repayment from uncertain future income.

Enable private investment

There is also a potential role for private investment. Debt will not be suitable for all businesses and even grants may not meet some companies' need for funding. Schemes and incentives which encourage and stimulate private investment into such businesses are useful.

For that reason, we welcome the launch of the Future Fund, announced by the Chancellor today. This should benefit many innovative businesses for whom the previous support measures had been unsuitable.

Much has been achieved already, and I am certain that Government remains fully committed to supporting businesses and protecting employment. In meetings last week we urged ministers to explore additional measures, specifically for SMEs. We know that many key decisions in this sector, regarding loans and investment, for example, are currently stalled because nobody knows how the situation will unfold over the months ahead. 
 
On Thursday evening, the First Secretary of State set out a kind of conditions-based exit strategy, built around five criteria which would have to be met before the lockdown could be lifted. While I understand why ministers are reluctant to give an arbitrary timescale for a return to something like normality, they must realise that prolonging that uncertainty has a cost in business confidence. 
 
And finally, at this stage, Government should be making the fullest use of the flexibility in EU state aid rules: the preservation of a vital section of the UK economy is at stake.

For the latest news and guidance on the ongoing impact of COVID-19 for businesses and accountants, visit ICAEW’s dedicated coronavirus hub.