As a small business owner, and as someone who interviews business owners for the The Harrogate Podcast, I fear for our SMEs. Most have been clobbered by COVID. My best guess is that 1 million businesses will perish in the next few weeks – all caused by British bureaucracy and presided over by this incompetent Government.
Regular readers to my blog will note my fury at the lack of preparedness and foresight displayed by this Government, particularly when it comes to matters of health. Just remember the debacle over ventilators (see my post here) as well as the disgraceful absence of PPE.
However, I welcomed the Chancellor’s semi-blank cheque to businesses and to workers. I welcome the Chancellor’s proclamation that this is not the time for ideology (code for: our right-wing economics will fail here, as it failed with austerity). And I praise the Chancellor for essentially introducing universal basic income in the form of the furlough scheme for employees and the £2,500 available to the self-employed. Praise where praise is due. The Chancellor started this crisis well.
But as all business owners know, cash is king. Hopeless zombie businesses can survive for years when money is plentiful. Although the concept of Government-supported loans for SMEs is to be applauded, the schoolboy Chancellor should have realised just how impossible it would be for the banks to provide the lending and to do so at pace and scale.
Two weeks ago, I had the misfortune to telephone my business bank. After 102 minutes, my call was answered. I was told that I could get a call-back in two weeks’ time! Businesses will be going under as I type because of the predictable difficulties of transferring billions of pounds from banks to businesses, whilst obtaining approval from the British Business Bank – an institution that I bet you hadn’t heard about before this crisis.
The first iteration of this loan scheme had to be scrapped because it demanded that businesses could only obtain funding if they first applied for commercial lending – at a time when it takes 102 minutes for the phone to be answered! In addition, the scheme required business owners to accept personal guarantees. Why would a business owner accept personal guarantees up to £250k if they didn’t know how long the lockdown would last, nor whether there would be future demand for their services? Pre-Covid, most SME owners moaned about their banks. Any business owner could have told the Chancellor that his first scheme was doomed to failure. Our Chancellor, who is married to a billionaire’s daughter and who has only worked in city hedge funds, couldn’t possibly know what it is like to run an SME. Why would he?
Am I being harsh on our Government? Let’s contrast how our system is working compared to Switzerland. This article appeared in The Times several days ago. The author, Tyle Brule, a Canadian entrepreneur working in Switzerland, described the Swiss scheme as follows:
“Fill out a form with six basic questions, send it to your bank and, all being well, you would receive a loan covering up to 10% of your turnover, with a ceiling of 500,000 francs, within 24 hours — zero interest, no penalties, repayable in five years and a jail term to match for wrong answers.
As Switzerland is home base for my businesses, I tried it out. Would they come good on the snappy turnaround? Could they really make a decision that quickly? Just 18 hours later I had my answer: 500,000 francs was in my account at UBS in St Moritz. My partner sent in an application at 11am on Tuesday and the funds were with him three hours later.”
Businesses will survive in Switzerland, but they will not here. Prudently managed businesses, run by caring competent owners, are going to the wall, leaving a trail of destruction and a negative economic tornado. This is all entirely preventable. Using data from Companies House, the Government could transfer 10% of last year’s turnover to the nominated bank account which pays Corporation Tax or VAT. Moreover, as humans cannot make the lending decisions fast enough, particularly when so many are poorly and/or caring for children at home, technology could have saved the day.
Clearly, it is better for the economy – for people – that most businesses receive some financial support and that there is some abuse, rather than the current farce which prevents abuse, but leads to SME insolvency en masse.
If businesses are to survive – and therefore the economy is not to tank – loans need to be paid to businesses now. There is no time for due diligence. This is the time for rapid action.
RIP to the economy as we knew it.
