The Autumn Budget 2021 contained some mixed news for the hospitality industry. There was potentially good news with alcohol duty reforms promising a more simplified system…
In the Spring 2021 Budget a number of announcements relating to existing support and new support available for businesses to deal with the financial fallout of the pandemic were made including:
- Restart grants totalling £5bn for retail, hospitality and leisure sector businesses
- A new Recovery Loan Scheme that replaces CBILS and the Bounce Back Loan scheme when they end this month
The overarching theme of newer support seems to be a shift to helping viable businesses recover rather than support being made available for all businesses. However, with unsustainable debt amongst UK businesses estimated to be over £100bn and reports suggesting as many as 250,000 businesses could close over the next 12 months, the question is will this new support be enough to help businesses survive?
Restart Grants will be welcomed by these sectors, as many businesses will be reluctant to take on further debt over the course of reopening due to uncertainty over future viability.
However if you consider that commercial rent arrears in these sectors was estimated to be around £4.5bn earlier this year and another quarter day will pass before some businesses can reopen even in limited capacity the rent arrears alone could exceed the value of the Restart Grants. The grants could very quickly be exhausted paying historic debts rather than focusing on restarting.
Recovery Loan Scheme
A new Recovery Loan scheme will replace CBILS and BBLS from next month. Although the terms are being finalised the expectation is that these loans will be on much more commercial terms than its predecessors
One key aspect is that businesses will need to demonstrate they are viable or would be viable if not for the pandemic, similar to CBILS and in contrast to Bounce Back Loans where viability was not assessed. The inability to demonstrate viability as part of applications is a key reason why the acceptance rates for CBILS (around 43%) are much lower than BBLS (around 75%).
Demonstrating viability now may be more difficult now as a result of existing debts built up since last March, especially considering that as many as one in five UK businesses are already “zombie businesses” surviving only on cheap debt and this number will likely have increased over the past 12 months. This suggests that although applications for the scheme could be high the acceptance rates may be much lower even with the 80% Government Guarantee limiting the effectiveness of the scheme.
Although taking on further long-term debt seems like an easy solution to bridge short term cash flow issues, business owners must consider their ability to repay this at a later stage. Now may be a good time to stop and evaluate all the options available to your business.
Francis Clark’s COVID Business Review can help by testing and giving credibility to forecasts to help demonstrate viability as part of any application as well as provide you with all options and support to help your business secure a healthier long-term future.