• SMEs account for 99.9% of the private sector employment in the U.K.
  • Spome approved lenders are charging high interest rates and demanding personal guarantees
  • Banks insist they are simply following government rules.



Almost one-fifth of small and medium-sized businesses, or SMEs, in the U.K. are likely to collapse within the next month, unless banks and government step in to save them.

That was the grim warning issued by the Corporate Finance Network, which represents a group of British accountancy firms.

The network predicted that 18% of all SMEs will go out of business as they will be unable to access rescue funds, even with the government’s efforts to provide support for struggling firms.

In tandem, at least 4 million people would lose their jobs and at least 800,000 – and up to 1 million -- firms would shut down permanently.

If the lockdown – which has brought the entire country to a standstill – persists for three months or more, some 31% of SMEs will be bankrupt by June.

SMEs, which usually have less than 250 employees, account for 99.9% of the private sector employment in the U.K. – amounting to some 22 million employees.

The network recommends that stronger businesses buy up at-risk smaller ones in their same sector in order to save jobs.

“We are asking the Treasury to fully consider our proposal, with them underpinning it with grants for supporting employment – possibly distributed via the 38 Local Enterprise Partnerships,” said Kirsty McGregor, founder of the network. “In addition, it would require a series of tax reliefs for corporation tax and longer-term capital gains tax which represents a return for the risk the government is asking companies to take when merging with a failing business.”

McGregor added: “We have some excellent entrepreneurial business owners in the U.K., but they are not usually motivated – or indeed accustomed – to make acquisitions, often perceiving such deals as high-risk, and complicated.”

She noted that over the last three years there have been only about 4,500 acquisitions by SMEs. “To save a significant percentage of the U.K.’s economy and keeping almost 4 million people in jobs, we need to encourage and facilitate 250,000 deals within the next few weeks,” she warned. “We can absolutely do this by incentivizing them, supporting them, and with the full backing and incentive of the U.K. government.”

McGregor further warned: "We could lose up to a million [SMEs] in the next month or so. And it will be irreversible -- which will be catastrophic for the U.K. economy."

BBC reported that many small firms have already been rejected for emergency loans by banks or cannot yet access promised stimulus funds from the government.

Chancellor of the Exchequer Rishi Sunak said two weeks ago that struggling firms will be able to receive Coronavirus Business Interruption Loans of up to £5 million [$6.2 billion] to survive the shutdown.

"Any good business in financial difficulty who needs access to cash to pay their rent, the salaries of their employees, pay suppliers, or purchase stock, will be able to access a government-backed loan, on attractive terms,” Sunak said at the time.

But banks are not making it easy to access such loans.

Steve Lord, managing partner of Belgrave & Powell, a Nottingham-based engineering group with 120 workers, faces a dire future after BAE System’s Samlesbury site, which makes F-35 and Typhoon fighter jets, stopped production. Belgrave had been supplying them with services.

"I was heartened and astonished to see the unprecedented help that was announced by the government two weeks ago," he said. "But we put one of our most senior people on [seeking loans] and as each day passed it was disappointment after disappointment."

Lord said some government-approved lenders wanted interest rates of up to 30% on loans – versus 7% offered by most retail banks.

"The government needs to make it so everyone's offering the same terms," Lord said. "It seems to be that if you are lucky, you are banking with the right party, if you're not lucky you'll end up having to close your business."

Peter Jackson, who owns jewelry shops employing 40 workers across the northwest of England, said he was denied a loan since his company incurred a small loss last year.

"I thought the whole point of the loans was to help business like mine stay afloat," he said. "But they're not going to help."

Moreover, banks are requesting that businesses that seek to borrow more than £250,000 ($310,000) must have their directors sign personal guarantees. In this event, if they default, their personal property could be seized.

Joshua Wade, who owns a cosmetics business called Skin and Tonic in London, said lenders were demanding early repayment penalties and personal guarantees.

"The Business Interruption Loan Scheme is, in principle, very welcome support right now," he said. "But the huge barrier for us is the requirement for all directors to give personal guarantees. As founders and executive directors, we already are risking everything but we simply can't ask our non-executive directors to take that risk on in such challenging and uncertain times."

Rachel Reeves, a Labour MP for Leeds West and an economist herself, criticized the banks’ behavior.

“The challenge now is getting the money out of the door to support businesses before it’s too late,” she said on Wednesday. “There are many businesses who if they don’t quickly access this cash they are going to go under. That will have huge consequences for employment and also our ability to grow the economy when this pandemic has passed. If businesses collapse they won’t be able to ensure our economy can recover. They will be lost forever.”

In a letter to Sunak, Reeves wrote: “Banks were kept afloat by government and taxpayers during the financial crisis. I would urge them to play their part in helping small and medium-sized businesses through this crisis.”

Banks insist they are simply following government rules.

"Lenders are working hard to get financing to all businesses who need it as quickly as possible and are using the Coronavirus Business Interruption Loan Scheme where appropriate, with some funding having already been provided under the scheme,” said a spokesperson for U.K. Finance, the bank trade association. "All lenders will take into account a business's individual circumstances when considering applications and many business loans can be provided either unsecured or secured on business assets."

Meanwhile, five small U.K. lenders, including Aldermore Bank of Reading, have temporarily withdrawn from the Coronavirus Business Interruption Loan Scheme because they have been deluged with too many requests for emergency loans from SMEs.

The lenders were part of a group of 40 institutions that were approved by the government to make loans that are supported by an 80% government guarantee.

Two MPs, Conservative Kevin Hollinrake of Thirsk and Malton and Labour member Seema Malhotra of Feltham and Heston, asked regulators to facilitate loans for SMEs.

“The process is too slow and complex,” they wrote to the Financial Conduct Authority, the Bank of England, and the Treasury. “Businesses are desperate for funds now, they cannot wait days or weeks when they have payroll and supplier payment obligations to meet.”