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Is the new small business recovery loan scheme enough?

While it may not be the emergency budget that many were calling for, the government is reportedly set to announce a £3 billion-a-year small business recovery loan guarantee scheme. Is this what small firms need?

Why smaller firms need a fresh government support package

Hot on the heels of the £15 billion support package for households, and with the Recovery Loan Scheme due to close within weeks, comes the news that the government is preparing to support the small business sector with new a small business recovery loan guarantee scheme. The reports are timely.

According to the Federation of Small Businesses, almost half a million firms are at risk of going to the wall in the coming weeks and months without fresh government intervention. Around two million small businesses have less than three months’ cash less, with a tenth of these firms in serious trouble.

In addition, a new survey from Barclaycard revealed that 75% of SMEs are concerned about the long-term impact of the cost of living crisis, soaring energy bills, increasing raw material costs and rising inflation. At the same time, small business confidence is falling sharply, with the Bank of England warning of recession.

Why is there criticism of the new business loan scheme?

Against this backdrop, the announcement of a new government business support package is good news. However, as details emerge, there is a growing consensus that it may not go far enough. At present, contention is focused on the belief that small business owners will have to offer personal guarantees to secure loans through the new scheme.

This means that borrowers will be liable for any payment defaults and while this is intended as a measure to stop abuse of the scheme, the additional risk attached to accessing finance through the scheme may deter some of the firms that need it the most.

Also, as yet, there has been no mention of any of the key measures attached to earlier discussion of an emergency budget for small businesses, such as a reversal or delay of national insurance reform, a VAT cut on energy bills and a further increase in employment allowance.

Supporting operations and how alternative finance can help

While it is currently unclear what government support for small business will look like going forward, what is more certain is the importance of the ability of these firms to access finance and their awareness of all the options available, including the services of alternative lenders.

In the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic and amid challenging market conditions in 2022, services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses, both for maintaining cashflow and for essential investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery and regrowth. Furthermore, alternative lending is playing a prominent role in the government’s headline emergency support scheme, the Recovery Loan Scheme (open until the end of June 2022). Invoice finance and asset finance between £1,000 and £10 million per business are available under the initiative. This profile is helping cement the reputation of alternative finance in the business sector.

Surviving the cost of living crisis and SME finance options

Given the growing calls for intervention, it comes as little surprise to learn that the government looks set to provide a fresh wave of support for small businesses. This news is positive but there are already doubts over the effectiveness of the new scheme. As such, whatever form this help takes, to keep operations going, it is critical that small firms consider all available finance options, including alternative finance, in their financial planning.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.

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