28th June 2022
500,000 Small Businesses Going Bust?
This was the apocalyptic forecast made by the Federation of Small Business (FSB) chairman, Martin McTague at the end of May who said almost 500,000 UK small businesses are at risk of going bust within weeks’ unless Rishi Sunak provides a support package for struggling SME’s. As we approach the end of June, was this just a headline grabbing comment, or did it have substance?
What are the statistics saying?
Other commentators and analysts are predicting a torrid time ahead for the UK’s SME’s, the most recent being the business health statistics published by Begbies Traynor Group (Red Flag research) albeit relating to Q1 of 2022. They highlighted further concerns but didn’t go as far as predicting the level of business failures, reporting:
Where have business’s cash reserves gone? What are the cash reserves being used for? Did these businesses have any reserves in the first place?
Consumer support vs business support
McTague used his statement to applaud the Chancellor’s support for consumers through the cost of living package, but went on to say this was all well and good but should the recipients lose their jobs they would be in a far worse position and become an even greater burden on the State. So, we most protect the SME’s who are providing their employment. He told BBC Radio 4’s Today programme: “…there is still a massive problem with small businesses. They are facing something like twice the rate of inflation for their production prices, and it’s a ticking timebomb. They have got literally weeks left before they run out of cash and that will mean hundreds of thousands of businesses, and lots of people losing their jobs.”
McTague went on to say that without further support, the expensive emergency assistance used to keep businesses afloat through the Covid-19 pandemic would effectively be wasted. “The chancellor spent approximately £45bn making sure those businesses survive the Covid crisis, are we seriously expecting him now to abandon them just as they’ve managed to get through one crisis and effectively lose that money for the taxpayer?”
A similar commentary was being made by Julie Palmer (partner at Begbies Traynor) following the publication of their business health statistics making reference to the latest Government insolvency figures for March. She highlighted the worrying trend with creditors voluntary liquidations (CVA’s) – the most common type of corporate insolvency – more than doubling compared to March 2021 and up 62% compared to March 2019.
“The Government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make. Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?”
Echoing McTague’s comments she said “Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts. The Government could ease the pressure on embattled businesses while not writing off debts racked up through measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) would be taking a longer-term view. Taking a hard line on repaying CBILS and other loans would likely drive businesses over the edge, risking the billions fed into the economy being wasted, and the legacy of this support probably explains the year-on-year fall in significant financial distress.”
Asset finance and asset refinance can help businesses
Whatever the outcome times are definitely going to become a lot harder for SMEs as the economy reacts to historical events and the measures put in place to deal with them. Let’s hope the prediction of half a million SME’s failing is no more than a headline grabber!
One way for SMEs to help generate the cash reserves they need is to look to refinance assets they own i.e., machines, trucks etc, known as asset refinance. Davenham is a renowned specialist in this area and would welcome the opportunity to help SMEs looking to raise cash by releasing equity in fixed assets. Contact one of our friendly and supportive team by calling 0161 832 8484 or email enquiries@davenham.co.uk. In the meantime, learn more about asset refinance on our website.
What are the statistics saying?
Other commentators and analysts are predicting a torrid time ahead for the UK’s SME’s, the most recent being the business health statistics published by Begbies Traynor Group (Red Flag research) albeit relating to Q1 of 2022. They highlighted further concerns but didn’t go as far as predicting the level of business failures, reporting:
- The number of companies in critical financial distress increased to 1,891 in the first quarter of 2022, almost a fifth higher than the same period last year. The 19% year-on-year increase has been driven by a 51% jump in the construction sector and a 42% rise among bars and restaurants.
- County Court Judgements – a warning sign of future insolvencies – up 157% to 22,552 in the quarter compared with a year ago; with March having seen the highest number in a single month for five years.
- “Red Flag Alert” point to a coming wave of business failures as the economy adjusts to the post-pandemic reality with Covid reliefs cut off and a rapid growth in inflation.
- Businesses in significant financial distress down 20% on the level a year ago at 581,596, though this is flat on the previous quarter – interesting statistic when considering the future predictions. Is this a reflection of Covid related issues within the economy and government support?
Where have business’s cash reserves gone? What are the cash reserves being used for? Did these businesses have any reserves in the first place?
Consumer support vs business support
McTague used his statement to applaud the Chancellor’s support for consumers through the cost of living package, but went on to say this was all well and good but should the recipients lose their jobs they would be in a far worse position and become an even greater burden on the State. So, we most protect the SME’s who are providing their employment. He told BBC Radio 4’s Today programme: “…there is still a massive problem with small businesses. They are facing something like twice the rate of inflation for their production prices, and it’s a ticking timebomb. They have got literally weeks left before they run out of cash and that will mean hundreds of thousands of businesses, and lots of people losing their jobs.”
McTague went on to say that without further support, the expensive emergency assistance used to keep businesses afloat through the Covid-19 pandemic would effectively be wasted. “The chancellor spent approximately £45bn making sure those businesses survive the Covid crisis, are we seriously expecting him now to abandon them just as they’ve managed to get through one crisis and effectively lose that money for the taxpayer?”
A similar commentary was being made by Julie Palmer (partner at Begbies Traynor) following the publication of their business health statistics making reference to the latest Government insolvency figures for March. She highlighted the worrying trend with creditors voluntary liquidations (CVA’s) – the most common type of corporate insolvency – more than doubling compared to March 2021 and up 62% compared to March 2019.
“The Government’s finances are themselves taking a hit from the increasing interest environment; they are simply not able to introduce further significant funding into the system, and they now have a choice to make. Do they rush to recover funds handed out during the pandemic to ensure there was a functioning economy afterwards? Or look for ways to control the number of businesses that fail?”
Echoing McTague’s comments she said “Having put so much money into protecting businesses over the past two years, ministers won’t want to see it wasted as companies collapse, unable to repay their debts. The Government could ease the pressure on embattled businesses while not writing off debts racked up through measures such as the Coronavirus Business Interruption Loan Scheme (CBILS) would be taking a longer-term view. Taking a hard line on repaying CBILS and other loans would likely drive businesses over the edge, risking the billions fed into the economy being wasted, and the legacy of this support probably explains the year-on-year fall in significant financial distress.”
Asset finance and asset refinance can help businesses
Whatever the outcome times are definitely going to become a lot harder for SMEs as the economy reacts to historical events and the measures put in place to deal with them. Let’s hope the prediction of half a million SME’s failing is no more than a headline grabber!
One way for SMEs to help generate the cash reserves they need is to look to refinance assets they own i.e., machines, trucks etc, known as asset refinance. Davenham is a renowned specialist in this area and would welcome the opportunity to help SMEs looking to raise cash by releasing equity in fixed assets. Contact one of our friendly and supportive team by calling 0161 832 8484 or email enquiries@davenham.co.uk. In the meantime, learn more about asset refinance on our website.