the times | Monday August 3 2020 1GM 41
Working LifeBusiness
Companies
fear failure
after virus
support ends
James Hurley Enterprise EditorMore than four fifths of medium-sized
companies fear that they will not be
able to trade longer than nine months
with their present funding arrange-
ments, research has found.
In a survey that underlines concerns
over the viability of businesses once
emergency lending packages have
been exhausted, one in ten mid-sized
businesses said that they did not expect
to be able to fully repay debt taken on to
survive the Covid-19 pandemic.
According to the study by BDO, the
accountancy firm, medium-sized com-
panies have taken an average of £21 mil-
lion in loans as a direct result of the
pandemic. The poll of 500 companies
with annual sales of between £50 mil-
lion and £350 million found that more
than nine in ten had made redundan-
cies in response to the outbreak, while
nearly one in three had cut at least a
fifth of their workforce — despite the
fact that the government’s furlough
wage support scheme does not close
until October.
However, BDO said that it also had
found “signs of recovery and resil-
ience”, with a third of respondents
saying that sales either had been
unaffected by the pandemic or that
they had increased revenue in recent
months. Three quarters said that they
intended to take on more apprentices in
light of new government support for
vocational training.
The furlough bonus, which offers all
businesses the chance to claim £1,000
for each employee they bring back from
the wage support scheme, proved
popular. Two thirds of the companies
said that they were planning on bring-
ing back all staff or a larger group of
staff than originally intended as a result
of the bonus, which Rishi Sunak, the
chancellor, announced last month.
Almost two thirds of companies pre-
dicted that it would take between one to
three years for the economy to recover
from the impact of coronavirus.
Paul Eagland, managing partner at
BDO, said: “History tells us that the
level of resilience of the mid-market
will be key to economic recovery. This
data shows us that, while challenges
remain, businesses have acted deci-
sively to protect themselves and
weather the storm.
“Some businesses have taken on
large amounts of debt to survive the
crisis, which prefaces a long road to
recovery.”
Mr Eagland noted that one in four
survey respondents had launched new
products or services in recent months.
“Some companies will use this as a
moment to rethink their operations
and business models,” he said.
The Federation of Small Businesses
has expressed concerns that local
lockdowns could send more companies
to the wall and has said that govern-
ment support will need to reflect
changes in emergency measures.
Mike Cherry, national chairman of
the group, said: “If the rules for busi-
nesses are going to be stop-start —
which is understandable — then busi-
ness support from government needs
to reflect that fact. It would be wrong to
wind down support while restrictions
are increased.
“What we absolutely have to avoid is
a scenario where whole swathes of the
small business community — not least
those in the creative industries, tourism
and leisure sectors — are wiped out
entirely.”small company lending emerging from the turmoil caused by the coronavirus outbreak, not least in the way it has proved the value of the British Business Bank
including relationship managers,
underwriters and valuers, meaning
that regional teams will have
significant latitude to make their own
decisions.
“The risk analysis [in credit
decisions] has to be around knowing
the players. You’ve got to look
[borrowers] in the eye and ask, ‘Do
they have the skill-set to take it to the
next level?’ ”
The service plans to start in
Manchester, but eventually it expects
to have eight regional “lending pods”,
each effectively a small bank in its
own right.
In an era when there are scores of
non-bank lenders for every banking
start-up, Mr Emerson said that the
cost and complexity involved in
securing a license would pay off
because it would make it easier to
attract funding, and at a lower cost.
“A lot of non-bank lenders are
shutting up shop now because they
can’t get funding.”
Is it not a scary time to be
launching a bank? The answer is “yes.
Whatever the market circumstances it
would be scary, but we are very
confident. We’ve got no legacy
portfolio. The big banks will be
working through theirs.
“We can pick and choose our
business. We’ll be there when small
businesses are desperate for funding
while the big banks have shut up shop
and the non-bank lenders have run
out of funding.”Levelling up the start-ups
One of the initiatives of the
British Business Bank that
Ron Emerson is most proud
of is Start Up Loans (James
Hurley writes). The scheme
provides unsecured, low-
interest credit of up to
£25,000 to budding
entrepreneurs.
“In the early days, 40 per
cent of the borrowers were
long-term unemployed,” he
said. “The average loan was
£6,500, so if you [got] off
welfare for six months,
you’ve paid for it. There was
a real social consequence
and it’s the kind of scheme
that would only be
delivered by the
government.”
While such economic
intervention from the state
has been contentious, Mr
Emerson believes that the
scale of the Treasury’s
Covid-19 mitigation
measures have changed
the conversation. That, in
turn, gives him hope of
serious investment from
the government in tackling
the skew of government
and financial services
towards London — or“levelling up,” as politicians
have called it.
Mr Emerson is involved in
a research project on how
moving political decisions
away from London might
help to boost regional
productivity. “Hopefully,
we’ll manage the pandemic
eventually with vaccines
and so on, but Brexit will be
a permanent challenge. Weneed to get the country
firing on all cylinders and
right now we’ve got a major
productivity divergence
between the southeast and
other regions. That has to
be fixed.”
Along with moving
political authority to the
regions and investing in
infrastructure, Mr Emerson
believes that the potentialof local small businesses
must be harnessed if
levelling up is to make a
difference — and that
means giving them more
access to funding.
“We’ve had governments
trying to find another
Nissan to turn up and
revitalise a region. It doesn’t
work. If you look at
Manchester and the way it’s
regrown and revitalised
itself, it’s pretty well through
[smaller companies]. And if
you look at the Industrial
Revolution, that started with
small businesses supported
by local banks.”
Local Enterprise
Partnerships, bodies set up
by the coalition government
to deliver more regional
power, have provided little
more than a good start,
with their effectiveness
often undermined by a lack
of co-operation between
them, Mr Emerson argues.
They “kept everything too
local. It’s fine looking at
[one] city, but you have to
trade with your neighbours.
We need more lateral
thinking.”Shortcuts, a children’s hair salon, received a Start Up LoanTIMES PHOTOGRAPHER RICHARD POHLE