This week the UK Government announced final totals for its COVID loans support provided through the pandemic, revealing a total of £80bn has been received by businesses to help them through the most extraordinary of economic times.
Additional initiatives including furlough, business rates relief, and self-employment support take the total financial commitment from the government to a staggering £352bn – equivalent to more than £5,000 per person in the UK.
Perhaps unsurprisingly, the wholesale and retail sectors were reported to have received the highest loan value via the CBILS and BBLS schemes specifically, at nearly £12.4bn, followed closely by the construction sector at £11.7bn.
The release of this data signifies an important turning point for UK businesses, given lenders participating in the scheme had until the end of May to finish processing loans. The unprecedented level of support has now peaked and, as businesses begin to recover, the scales of support are beginning to tip towards repayment rather than receipt.
As the much-vaunted “Freedom Day” has also come and gone this month, business attention is turning sharply to kick-starting a period of sustained recovery, while also planning how to execute on deleveraging and servicing these extreme levels of debt as wider support levers begin to fall away.
This will add to cash pressures, which continue to build as working capital/investment needs increase, and support measures including business rates and furlough relief unwind, with landlords also taking a more combative approach for unpaid rent. Similarly, whilst HMRC has adopted a supportive approach in their pursuit of overdue liabilities, the question remains as to how long this goodwill will last before market conditions and government finances dictate a change of gear to replenish public finances.
With daily COVID-19 cases passing 60,000 last week, a 600,000-strong “pingdemic” hampering staffing levels in businesses trying to build back, and border control sensitivity increasing with regard to travel to and from the UK, it's clear that our exit from the pandemic will not be a smooth one. Global market performance this week has crystallised the more pessimistic atmosphere that is developing.
All of this continues to keep the fog from fully lifting for businesses, with yet more disruptive forces thrown into the mix to factor into forecasting. With cash flow increasingly taking the strain, the emerging question is how to address increased leverage against such an uncertain economic backdrop. While equity markets have been supportive, and lenders patient to this point, the onus is now on companies to strike a position where they can confidently articulate their plan to deleverage and recover shareholder value, to ensure they maintain stakeholder support.
Even though the road ahead still may not be clear, now is the time for business leaders to build a robust picture of balance sheet viability and ensure they have a sustainable capital structure, with an operating model that can also stand up to whatever the world may throw at them next.
For lenders, ongoing support may in some cases provide businesses the time they require to rebuild revenue, service debts and ultimately refinance. However, in many other cases, difficult decisions will need to be taken, which may have been deferred to date. The ability to comprehensively restructure facilities may be further complicated by the as yet untested presence of a new indirect guarantee stakeholder – the UK Government.
Time will tell us who goes on to thrive in the new normal, and who will fail to adapt and feel the weight of the scales tipping against them.
“The unprecedented level of support has now peaked and, as businesses begin to recover, the scales of support are beginning to tip towards repayment rather than receipt.”
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