A fifth of small firms will run out of cash in a month, report says

Nearly a fifth of small firms will run out of cash within the next four weeks, research has suggested as pressure mounts on the Chancellor to overhaul his emergency coronavirus loans scheme for hard-hit businesses.

A report by The Corporate Finance Network of accountants working with nearly 13,000 businesses predicts that 18% of all struggling small companies will not be able to survive the next month due to the UK lockdown.

This could see nearly four million staff lose their jobs in May, it warned, adding that as many as 42% of small firms could go bust if the lockdown lasts for four months or more.

This is despite Chancellor Rishi Sunak’s attempts to shore up the small business sector with a Government-backed emergency loan scheme, which has been widely criticised for failing to offer the support needed.

Banks have come under heavy fire amid claims of unfair lending tactics under the scheme, with some demanding personal guarantees from business owners and others seeking to apply high interest rates once the interest rate-free initial period ends.

The Business, Energy and Industrial Strategy Committee cautioned on Tuesday that problems with the scheme were putting off many firms from accessing the cash.

Rachel Reeves, chairwoman of the cross-party committee of MPs, has written to Mr Sunak outlining concerns over the way lenders are “interpreting” the emergency loan scheme and calling for him to clarify the terms and conditions.

Swathes of small firms have been complaining the scheme is hard to access and that it is not a level playing field, with banks being given too much leeway.

The coronavirus loans scheme is designed to offer companies up to £5 million interest free for the first year to help shore up their businesses.

The Government has pledged to underwrite 80% of the risk of the bank loans as an incentive for banks to lend to firms in difficulty.

But it came to light last week that many big lenders were demanding business owners give personal guarantees that could see their assets being seized, though some have since U-turned on this decision or are waiving this for loans up to £250,000.

Ms Reeves said there were also worries that some lenders were choosing to push their own financial products before the emergency loans.

The Corporate Finance Network believes as many as 250,000 small businesses will need to join forces and merge to survive and protect jobs.

It is urging the Government to consider its proposals to support more robust firms in acquiring smaller struggling rivals.

Kirsty McGregor, founder of The Corporate Finance Network, said: “We have some excellent entrepreneurial business owners in the UK, but they are not usually motivated – or indeed accustomed – to make acquisitions, often perceiving such deals as high-risk, and complicated.”

She added: “To save a significant percentage of the UK’s economy and keep almost four million people in jobs, we need to encourage and facilitate 250,000 deals within the next few weeks.

“We can absolutely do this by incentivising them, supporting them, and with the full backing and incentive of the UK government.”

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