Bouncing Back
In its first three weeks, the government Bounce Back Loan Scheme (BBLS) has lent a staggering £18bn to small UK businesses. The government launched the scheme, which involves them guaranteeing the risk for the banks, several weeks into the lockdown, when it became obvious that the previous iteration – the CBILS loan – was too cumbersome to get money into the economy at the required speed.
This has been a literal lifeline to many businesses, whose sources of income ground to a halt almost overnight. The loan will keep them afloat during the next couple of months as we start the recovery.
What worries me is what comes next.
Much has been made of the 100% government guarantee that underwrites the loan, but that protects the bank, not the borrower. This money is not a grant. It’s a loan that will need to be paid back. In the worst case scenario, if the business fails, the bank won’t be able to enforce collection on company directors. Nobody will lose their house. But they could lose their business, their livelihood, their credit rating (and with it their ability to borrow more money in future.)
It’s perfectly forgivable for company owners to be focused on the short term survival of their business and the jobs of their employees. In the short term, borrowing money rather than going under is absolutely the right decision. But not combining that with some long term planning could be just delaying that worst case scenario.
There are no repayments to be made on Bounce Back Loans for the first twelve months, but what happens after that? If a company borrows £50,000 on the six year scheme, their repayments after the first year will be close to £900 per month.
It’s vital that businesses start thinking about that sooner rather than later.
We are not out of the woods yet, but as the world slowly returns to normal, business owners need to plan how to grow their businesses. How to thrive in the post lockdown world. Could you have afforded £900 per month extra in 2019? If the answer is no, then what will you do differently to make sure you can afford it in 2021?
