‘Credit squeeze’ facing UK firms in 2021

A new “credit squeeze and funding gap” could affect UK businesses in 2021, as firms move from survival to recovery over the next 12 months, a report from Rangewell has warned.

The business finance expert has called for the government to continue supporting business financiers and encourage a wider array of lending.

Rangewell suggested the majority of sectors are moving away from survival to recovery due to the success of coronavirus support loan schemes, and indicated there is a need for new government schemes to encourage long-term credit facilities.

The report stated that lending has been “almost solely concentrated” on the Coronavirus Business Interruption Loan Schemes (CBILSs), as opposed to a wider selection of products.

Rangewell’s data revealed that 93% of taxpayer-backed lending has been with the Bounce Back Loan Scheme – a “low-value, short-term” loan – and the finance expert warned the danger is that the only credit available to firms could be emergency funds and only from bank’s current client bases.

“We are in danger of a new credit squeeze in 2021,” said Rangewell research consultant, Nic Conner. “As firms move from survival to recovery in 2021, the Treasury needs to help lenders, particularly non-bank lenders, in getting funds to British businesses.

“The CBILSs have been hugely successful and credit to the Chancellor and the financiers in getting these schemes in place so quickly. The taxpayer-guaranteed loans have not only saved firms and jobs, but entire industries. As we move onto the next phase, these emergency loans must continue throughout 2021 but must sit alongside other credit facilities. 

“The trouble with lending being so concentrated on the COVID schemes is that it will create a funding gap where firms in a strong position and who will be looking to expand and diversify in 2021 will be ushered into COVID emergency loans, which are just not appropriate for them.”

Rangewell has called on the Chancellor to continue the CBILS for all of 2021, or longer if the restriction on trade, commerce and travel continues into 2022 or beyond, and suggested the intention of this will be to help firms who need funds to survive in the short-term.

As the report also highlighted a new EFG-style loan scheme potentially emerging, the business finance expert also called for assurance that this scheme does not turn into a “survival programme” for struggling businesses, but a way to give lenders confidence with partial taxpayer guarantees to support businesses looking to grow with more long-term credit.

“Rishi Sunak needs to put in place a new partially-guaranteed scheme which will help financiers to offer more mature, long-term products like invoice finance, asset finance or the good old-fashioned overdraft,” Conner added.

“For the UK to move forward, we need an active lending market so, in addition to a new partial taxpayer-backed scheme, Sunak should introduce a wholesale money programme for non-bank lenders.

“Not only will this money give financiers the security of offering a wide array of competitively-priced finance products, but the returns could go some way to neutralise any losses, and very possibly be profitable, to the Treasury.”

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