Half a million businesses to hit the wall by spring without support
That’s the conclusion of a new study by the Institute for Public Policy Research (IPPR) think tank, which works out at around 600,000 businesses employing as many as nine million people.
The think tank noted that the existing government support schemes for businesses, such as the furlough scheme and loan guarantees, have been successful in keeping businesses afloat and protecting jobs.
However, these schemes are due to finish in March and April, which will “cast uncertainty over many firms’ balance sheets” according to the IPPR.
Analysis by the think tank found that the latest schemes did little to improve the cash buffers of firms, with almost a third of businesses now boasting less than three months of cash reserves.
Looking at a sector-by-sector basis, some businesses are particularly at risk of running out of cash. For example more than 50% of accommodation and food service firms were found to have less than three months of cash reserves, while arts, recreation and entertainment businesses are in a similarly weak position.
How to avoid a spring of bankruptcies
The IPPR has set out a host of measures which could ensure that the coming months don’t see thousands of employers going bust.
These include removing the ‘cliff edge’ of the current support schemes by extending them at the same level or tapering the support, so that they are gradually phased out rather than simply ending suddenly.
It also called for the level of grant support to be extended so that it makes a meaningful difference to the financial position of businesses, and calls for equity injections to be introduced alongside the current set-up of loans and grants.
The report stated: “With the market likely to under-provide equity support for businesses to a sufficient degree, the state should offer equity to viable firms, taking a stake in the UK’s economic recovery. This could, for instance, take place via debt-to-equity swaps for outstanding loans. In the case of SMEs, we have suggested a new equity like investment product.”
The suggestions follow government moves to allow businesses more time in which to pay back Bounce Back Loans, though Bank of England reports suggest there should be some optimism with the economy expected to recover strongly from the pandemic this year.