A very different kind of recession

13/08/2020

It’s official, then. The UK is in a recession.

Not that it’s any surprise. Neither is the fact it’s the deepest recession the UK has ever seen, with a contraction of 20.4% recorded between April and June.

For businesses, it only underlines how challenging things have been since the onset of the pandemic. The question on everyone’s lips, though, is how long will it last?

It’s 11 years since the UK was last in a recession, triggered by a global crisis of a very different kind. And if there’s one positive to be found, it’s that there’s far more financial support available to businesses today.

In 2009, traditional bank lending to UK companies fell dramatically, with businesses across the country criticising lenders for the difficulties they faced in accessing the credit they needed to survive and prosper.

It’s a very different story today, with data released by the Treasury revealing more than £50 million has so far been advanced to more than 1.2 million businesses by lenders through the government’s loan schemes. Though each of the schemes has its critics – particularly surrounding the sustainability of such lending – there’s no denying they’ve been a huge short-term help to so many companies affected by the initial shock of the pandemic.

In fact, business lending is predicted to grow by 14.4% this year – the highest level in 13 years – according to an EY ITEM Club Interim Bank Lending Forecast.

The challenge for businesses is how they use this funding to overcome the challenges being posed, set themselves up for the future – and pay it back once interest is applied and repayments become due.

According to business advisory group BDO, more than four in every five medium-sized businesses in the UK can only continue trading for up to nine months with their current funding arrangements, underlining how this emergency funding is failing to provide a long-term solution.

Regardless of how the pandemic unfolds, the next few weeks and months will be critical for businesses of all sizes. It’s important to address how to service loans provided through the BBLS or CBILS, pay staff when the furlough scheme ends, settle VAT payments they may have deferred until next year – and deal with the impact of Brexit.

It’s vital businesses of all sizes don’t rest on their laurels, and instead review their cash flow forecasts and any funding facilities they have in place to understand where any shortfalls may exist – and crucially where those facilities might be proving restrictive or failing to address the challenges faced.

If you’re concerned about how your business will fare in the coming months or would like to review your existing finance arrangements, contact our team of funding consultants by calling 0800 9774833 – or request a call back at a convenient time, and we’ll be pleased to help.