Why the West struggles to balance the books
Businesses in the Southwest are growing in debt during the foreclosure, credit card bills and overdrafts piling up and fears of a “ financial crunch ” for small businesses are looming.
A year after the start of the pandemic, many business owners are increasingly dependent on expensive sources of borrowing such as overdrafts and credit cards, a Business West survey found.
Four in ten of the 550 companies that responded reported higher debt levels than a year ago, while a similar number had six months or less of cash reserves remaining, exposing the enormous cost. financial support of the coronavirus despite extensive government interventions in the economy.
As pressures on businesses increased after multiple lockdowns, 28 percent of businesses seeking financing opted for the rebound loan program which offered attractive interest rates and flexible repayment terms.
365 Linen Hire, based in Salisbury, which supplies tablecloths and napkins to the wedding and event industries, highlights how emergency borrowing has taken the pressure off many businesses affected by COVID-19.
Its chief executive, Richard Gould, said that, as hopes for the economy kicked in earlier in the year, the company sought BBLS funds to prepare for a summer reopening, after “holding out for the longest time. possible”.
There have been few winners and very many losers from the pandemic, a good proportion of whom have taken on additional debt to help them get through
Managing Director of Business West Phil Smith
The use of overdrafts and credit cards is also relatively high – at 22 percent and 19 percent – as these funding sources are more expensive than government-backed emergency funding.
They are also more common than the official government-backed Coronavirus Business Interruption Loan (CBILS) program, which only 16% of respondents chose. The percentage of businesses borrowing money from family and friends is also quite large, at 11%.
Bristol-based marketing agency Feisty Consultancy has been one of the companies to complain about being abused by their banking provider in the past 12 months.
“At least during the first foreclosure, the banks helped lower / remove the fees,” Managing Director Vikki Little said. “But that stopped a few months ago and has not been restored, despite the fact that the situation is now worse for many companies. I wrote to my bank about it and was told “difficult” basically. “
While the increased prevalence of short-term borrowing has not been sufficiently worrying for the state of corporate finances, it is particularly so for the self-employed.
Two-fifths of those polled identified credit cards as their main source of funding during the pandemic – a finding that suggests that many who fell through the cracks of government support programs were unable to access to cheaper alternative loans.
In this context, Business West is concerned about a possible “financial crisis” ahead for small businesses. With the start of repayments on government guaranteed loans and the level of debt of financial and other institutions, the burden of this debt is expected to slow the resumption of activities.
Unsurprisingly, after a year of foreclosure restrictions, nearly half of the 550 participants reported a deterioration in their cash flow, pushing that figure to the lowest of the past three years, with consistent responses across sectors. services and manufacturing.
“It’s awful,” said Val Hennessy of the International House language school in Bristol. “Virtually no income and little prospect of any real increase in income in the near future as international travel is banned or UK travel costs for students are too off-putting. We can no longer risk borrowing because the future is so uncertain. “
Stephen Sage, managing director of ACES, a Bristol-based electronics company, said with the school closures: “Social distancing measures have slowed down our production as well as… working from home,” before d ‘add: “Equipment shortages have also made the problem worse.”
More than half of respondents said their sales, profitability and cash flow had been affected by the pandemic. The percentage of businesses affected in the retail, tourism, food and beverage and consumer services sectors is even worse (over 60%), with many growth projects delaying and recording losses. reduced profit margins.
Phil Smith, Managing Director of Business West, said: “There have been few winners and very many losers from the pandemic, a good proportion of whom have taken on additional debt to help them get through.
“At best, we will see pandemic-related debts paid off quickly as business activity begins to ramp up and accelerate as foreclosure restrictions are lifted. At worst, growing debt holds back business growth and is a long-term drag on the region’s economy.
“We are worried about small businesses and the access of the self-employed to adequate financing during the recovery period. At the end of March, BBLS and CBILS closed their doors, and CBILS was replaced by the successor to Recovery Loan Scheme.
“However, this is available through commercial bank loans and is only guaranteed by the government for 80% of the loan. Our results highlight a looming funding gap for small businesses, given the special financial needs of small businesses, which appear not to use CBILS, possibly because it is more difficult to access this form of funding. more formal banking. We believe that further public funding programs for these small businesses may be needed. ”