Government urged to introduce more long-term credit support
The government has been urged to extend Covid-19 loan schemes for the rest of the year and provide additional support to encourage long-term credit facilities.
A report from business finance experts Rangewell said that the Covid-19 support schemes have been successful, with 31 per cent of all businesses reporting they have received a government-backed loan during the pandemic, according to its analysis of economic data.
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Due to this success, businesses are moving from survival to recovery in 2021, Rangewell said, although this could lead to a credit squeeze and funding gap.
This gap in funding has been exacerbated by the fact that bank lending is currently almost solely concentrated on the Covid-19 support schemes – mainly the bounce back loan scheme – which is more of a short-term loan and doesn’t address long-term needs.
Therefore, the government needs to support business financers to encourage a wider range of lending, Rangewell added.
Rangewell has urged Chancellor Rishi Sunak to extend the coronavirus loan schemes for the whole of 2021 or longer, if trade, commerce and travel restrictions continue, to help those firms which need funds to survive in the long-term.
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In addition, Rangewell said a new loan scheme similar to the enterprise finance guarantee (EFG) scheme should be aimed at giving lenders confidence with partial taxpayer guarantees to support firms looking to grow with more long-term credit, as opposed to helping struggling businesses survive.
Furthermore, the company also called for a new ENABLE funding programme where the Treasury lends money to financers which can be distributed via the new EFG-style loan schemes to small- and medium-sized enterprises (SMEs).
ENABLE was a wholesale money programme for non-bank lenders after the 2008 credit crunch.
Rangewell found 43 per cent of businesses have high confidence that their firm will survive, whilst 36 per cent reported moderate confidence and nine per cent said they have low confidence.
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“We are in danger of a new credit squeeze in 2021,” said Nic Conner, research consultant at Rangewell and author of the report.
“As firms move from survival to recovery in 2021, the Treasury needs to help lenders, particularly non-bank lenders, in getting funds to British businesses.
“The coronavirus business interruption loan schemes have been hugely successful and credit to the Chancellor and the financiers in getting these schemes in place so quickly.
“As we move onto the next phase, these emergency loans must continue throughout 2021 but must sit alongside other credit facilities.
“The trouble with lending being so concentrated on the Covid schemes is that it will create a funding gap where firms in a strong position and which will be looking to expand and diversify in 2021 will be ushered into Covid emergency loans, which are just not appropriate for them.
“Rishi Sunak needs to put in place a new partially-guaranteed scheme which will help financiers to offer more mature, long-term products like invoice finance, asset finance or the good old-fashioned overdraft.”
