Next month the Treasury is due to unveil a new taxpayer-funded loan scheme in the region of about £61bn worth of lending to small and medium-sized companies during the Covid-19 crisis. With the interest on the loans reaching up to 15%, this is likely to be just a temporary fix to a growing problem that may leave businesses worse off. Now more than ever, investment into UK SMEs has become imperative to help them survive and recover post-Covid.
Although the Government’s efforts to support small businesses are admirable and will undoubtedly go far to help, they are ultimately too short-term. Once this immediate relief is over, small firms will find themselves inundated with a build-up of debt. This year the government has already loaned £41bn to SMEs, which is a huge amount for them to pay back, and with no real end in sight to the pandemic this could pose more long term problems than solutions for many businesses.
Private capital has proven to be fundamental in helping UK businesses weather the storm, and grow and flourish post-pandemic. Investment into UK SMEs, and the extension of EIS and loan support schemes, will be way more efficient than any government loan scheme and vital to the resurgence of the UK economy, with the SME community making up 99.9% of private sector businesses.
Luke Davis, CEO of IW Capital: “The size of funds managed by the UK’s community of institutional investors demonstrates the potential power that private capital has in helping SMEs survive and grow out of the Covid pandemic. The government has already loaned £41billion to SMEs, which will be hard to pay back and could even leave them in a worse state than before in the long run.
“We, as investors, have a duty to support firms in the good times and the bad. The plight of small businesses during this time is less than reflective of what their business model could have ever predicted. If we can come together to help save businesses now, we could see not only great returns in future but also offer a helping hand to the British economy.
“Financially, this is a testing time, and small businesses are fragile to say the least. Although this much-needed cash injection from Sunak will be of assistance, it is not a long-term solution to this growing problem. The entire community of private UK investors will need to pull together to help these businesses survive and grow beyond this period of immediate recovery.