SME debt could hamstring the recovery – business news 10 March 2021.
James Salmon, Operations Director.
SME debt could hamstring the recovery, OECD raises UK economic forecast, SME’s and cybersecurity and more business news.
SME debt could hamstring the recovery
A report from the British Business Bank (BBB) shows lending to SMEs rose by 82% last year to £104bn, fueled by emergency Covid schemes. Catherine Lewis La Torre, head of the Business Bank, said that small businesses were likely to divide into those struggling with repayments and those able to borrow and invest in growth.
Record levels of smaller businesses sought external financial support in 2020, the study by the BBB found.
The study said significant further demand for such loans was expected in 2021.
The report also found almost half (45%) of SMEs applied for external financial support in 2020, compared to 13% in 2019, and that nine in ten (89%) businesses did so because of the impact of COVID-19.
Around 75% of these SMEs did so to help with their cashflow.
The Federation of Small Businesses said four in ten of those who recently accessed finance described their debt as “unmanageable”.
“That three quarters of small firms are accessing finance to help manage cashflow underscores how COVID-19-linked disruption is exacerbating our late payment crisis, a crisis which destroys 50,000 firms a year at a cost of at least £2.5bn to the economy,” the Federation of Small Businesses’ national chairman Mike Cherry said.
“The question now is, what steps should policymakers and banks take to ensure emergency debt delivers value to the economy? More than half of those with facilities say a student loan approach – whereby repayments are only made once a firm is profitable again – would mark a helpful way forward,” he added.
He suggested that greater incentives to adopt an Employee Ownership Trust model could also help.
Speaking about chancellor Rishi Sunak’s new scheme to tide businesses over, Cherry said: “We very much hope the Recovery Loan Scheme proves successful over the years ahead and look forward to regular updates on take-up.”
The scheme will offer loans from £25,000 to £10m, with an 80% state guarantee. It will replace Coronavirus Business Interruption Loans, its counterpart for large companies, CLBILS, and the fully state-backed Bounce Back Loans, which together have loaned struggling firms £73bn.
CPA has been assisting firming in recovering debt for over 100 years. During and after this pandemic, having a professional and robust credit management policy is essential. You want to make sure that your customers prioritise your outstanding invoices and use their finite resources to pay you on time. CPA can help make you a priority.
OECD predicts UK GDP will rise 5.1% this year
UK GDP is now forecast to increase 5.1% this year and 4.7% in 2022, according to the Organisation for Economic Cooperation and Development (OECD). It said the recovery from the pandemic has been “faster than expected”, with global GDP now expected to grow 5.6% in 2021, up from a previous forecast of 4.2%. The OECD also said a stimulus bill from the US would also provide a boost to the country’s trading partners.
But the Telegraph’s Ambrose Evans Pritchard says Joe Biden’s $1.9trn injection will run out of fizz after three months leaving the US economy looking at a short-term boom in the rear-view mirror. Republican Senate Leader Mitch McConnell commented: “This isn’t a pandemic rescue package. It’s a parade of left-wing pet projects. Our country is already set for a roaring recovery, but not because of this bill. In fact in spite of this bill.”
Cybersecurity crucial as economy recovers
Conservative MP Simon Fell, who is also chair of the All-Party Parliamentary Group on Cyber Security, says in a piece for City A.M. that as the economy navigates its way out of the pandemic it will be more important than ever that small businesses are protected from cyber-attacks. With SME’s crucial to growth and the country’s levelling up SME cybersecurity is “an issue of national economic resilience.” Mr Fell goes on: “As we recover economically from the pandemic, we need to make sure that we properly consider the cybersecurity challenges posed by a dispersed and distributed workforce, especially for SMEs and start-ups. It is in everyone’s interests to have businesses of all sizes, throughout the economy, properly equipped to deal with the opportunities and challenges of a digital world.”
HSBC launches £15bn fund for SMEs
HSBC is launching a new £15bn fund to help UK SMEs with £10bn of this focussed on regional allocations. Head of small business banking at HSBC UK, Peter McIntyre, said: “We’ve helped British business get through the last year with over £14bn of COVID-19 lending support. Now it’s time to turn our minds to what comes next and how we help companies grow again, opening up a world of opportunity and contributing towards a sustainable future society.”
London House Prices
London House Prices are set to boom over the next five years, estate agent Savills said as it upped its UK property market forecasts for 2021. House prices in London’s mainstream market are expected to rise 12.6% in the five years ended 2025, the real estate firm said.
UK overseas territories tax haven charts
Britain’s overseas territories have topped a list of the world’s most significant tax havens ahead of Switzerland, the Netherlands and Luxembourg, The British Virgin Islands were ranked as the “greatest enabler of corporate tax abuse” in the Tax Justice Network’s biennial report, with the Cayman Islands in second place and Bermuda third. Britain charted 13th, singled out for providing the widest scope for international corporations to cut their tax bills. Dereje Alemayehu, the executive coordinator of the Nobel peace prize-nominated Global Alliance for Tax Justice, said the report’s findings showed the biggest economies in the world were helping companies avoid $245bn in tax, and “to trust the OECD in light of its findings is like trusting a pack of wolves to build a fence around your chicken coop”.
DFS Furniture
DFS Furniture reported strong performance in the first half of its current financial year amid improved demand for its products. The UK-based retailer of living room and upholstered furniture reported revenue growth of 17% in the 26 weeks to December 27 to £572.6 million, with pretax profit jumping by 56% to £72.1 million year-on-year. They noted that improved performance was driven by strong order intake in the period, as a result of pent-up demand amid lock-down, market share gains and a shift in consumer spending to the home. DFS Furniture noted that its online revenue was up 66% year-on-year.
Restaurant Group
Restaurant Group posted a deeper annual loss and launched a £175 million equity raising as covid lock-downs continue to hammer the eat-in dining market. Pre-tax losses for the year through December amounted to £127.6 million compared to year-on-year losses of £37.3 million, as revenue slumped 57% to £459.8 million.
Just Eat
Just Eat Takeaway said it expected a further acceleration in order growth in 2021 after reporting a rise in annual core earnings on a pandemic-fueled jump in revenue. For 2020, adjusted earnings before interest, tax, depreciation and amortization rose to €256 million, up from €217 million year-on-year as revenue jumped 54% to €2.4 billion from €1.6 billion.
Rishi Sunak asked to explain corporation tax claims
The Chancellor is being asked to explain his claim that his “super-deduction” corporation tax relief will not only bring forward business spending for two years but “will increase the amount of investment as well”. However, the Office for Budget Responsibility says its forecasts show that investment tails off from June 2023 compared with its November outlook, correlating with the increase in corporation tax from 19% to 25% in 2023. Anneliese Dodds, the shadow chancellor, said: “The Chancellor claims that his massive tax break for some of the biggest businesses will, on its own, bring more investment. However, the OBR is clear it won’t. He needs to come back to the House and explain this statement. The truth is that the Government’s plan for growth is in tatters.”
Sanjeev Gupta’s metals businesses miss UK tax payments
Companies controlled by Sanjeev Gupta have failed to pay tax owed to HMRC for both workers and VAT, sources have told the FT. The news adds to concerns about the health of the industrial conglomerate following the collapse of its main funder, Greensill Capital. The Times’ Katherine Griffiths considers the business of supply chain financing, which is widely seen as open to abuse, pointing to its use by Carillion and NMC. We are likely to hear more about whether accounting standards are robust enough, Griffiths suggests, and if there hasn’t been “inappropriate actions by individuals, misinformation or even corruption” at Greensill and Gupta’s steel empire. Meanwhile, the Telegraph reports that Gupta’s Liberty Steel will furlough workers at its operation in Rotherham and Stocksbridge this week in an attempt to conserve cash. Mr Gupta is also trying to seal a standstill agreement on repayment s to Greensill to remove the prospect of insolvency.
Angus Steakhouse looks to trim rental payments
Angus Steakhouse is on the verge of administration with KPMG now seeking concessions from landlords. But KPMG warns they may not all reach agreement and the firm is now preparing for an administration. Angus Steakhouse, which is run by the Gateshead-based Noble Organisation, hopes landlords will permit the restaurant chain to forgo rental payments until trading restrictions are lifted after lockdown.
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