Despite an additional £150bn in government bonds purchased by the Bank of England (BOE) and extended government support provided to UK businesses, more needs to be done to keep SMEs alive, particularly as debt will accumulate over time, says Douglas Grant, managing director at Conister bank.
“What we are doing is stacking up a problem for the future in terms of how SMEs are going to be able to repay that debt,” he says. “SMEs are going to have to deal with an additional debt that they’ve taken on.”
Conister is currently working with businesses that have been impacted significantly by the pandemic, such as companies in the brewing or agriculture sectors.
“The talk is now around whether we should be looking to put that debt into something incredibly long term, for example. But only the government can afford to take that length of view,” says Grant.
While extending the Bounce Bank Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) is a step in the right direction this means lenders will be allocating money against a three or five-year loan.
“Let’s say that five-year loan gets pushed out to seven years, you’re creating a mismatch between your asset and your liabilities. It’s not material for us, but for other banks, it might be a material mismatch of which they have no real control over, and they’ll have to deal with that in terms of liquidity reasons,” he explains.
Bounce Back Loans are yet incredibly low yield and have an administrative burden to them, according to Grant.
“We are more interested in CBILS – it gives you a chance to look into the companies and understand which sector they operate in, but then it’s a competitive advantage.”