When Rishi Sunak announced his package of measures to help small businesses, they were greeted with cautious approval across the UK. But now that the lockdown has kicked in and reality is beginning to bite, has the Chancellor done enough to keep SMEs afloat?

The pressure on small businesses during the corona crisis is intense. Salaries, utilities, rent and interest payments must all still be met by SMEs that have less money coming in or none at all. According to the Chancellor’s own figures, up to 20% of the working population may be affected and already the number of people signing up for Universal Credit has jumped by nearly half a million since the crisis began. 

Sunak said he would do ‘whatever it takes’ to support business and the figures are certainly encouraging. After all, small businesses in the UK currently account for three-fifths of all employment in the private sector and half its turnover. Talk of a 15% drop in GDP suggests devastation to the SMEs that drive the economy and it’s a reasonable assumption that most of the newly unemployed come from that sector.

So let’s take a closer look at what’s on offer in this unprecedented intervention, worth over £330bn in state loan guarantees and an additional £20bn in loans and grants. Live now are a raft of fast relief measures including a VAT holiday, HMRC’s Time to Pay scheme and support for businesses that pay little or no business rates.

Businesses can also furlough their employees while the Government pays 80% of their salary up to £2,500 a month. And SMEs will have the option to apply for interest-free business interruption loans. It’s a rescue package that was greeted with cautious optimism by the CBI and the Federation of Small Business and the reactions have been good for the new Chancellor.

But the reality on the ground can look and feel very different if you’re one of the small businesses in the UK right now who are debating whether to take on a business interruption loan with little or no cash flow. And even if you decide to take the risk, there’s no guarantee that you can access lending when there are forms to fill and phone lines to lenders are jammed with calls.

For banks, the demands of panicking clients, the complexities of the business interruption loan scheme and the lockdown of economic activity means that they’re unable to lend effectively at this critical time. 

While the pain is universal, the response from world governments has been very different. Sunak’s measures have brought the UK in line, at least for the time being, with the rest of Europe on sick pay and the size of the stimulus package is comparable to those of France and Germany. But SMEs looking for a grant from local authorities are finding them overwhelmed. And before any cash can flow, small businesses need to qualify for business rate relief. There are 700,000 eligible businesses, many of which have applied and are still waiting for a response. 

The picture on the employee furlough scheme doesn’t deliver any immediate relief either, with the scheme due to start at the end of April and freelancers being forced to wait until June. That leaves businesses to shoulder at least two months worth of wages when their cash flow may have slowed to a trickle or dried up completely. Could some form of Universal Basic Income be the solution until the pandemic plays out?

Another grey area is rents and utilities which often represent the biggest bills that SMEs face. Businesses that have been forced to shutter such as the thousands of restaurants, cafes and pubs across the hospitality sector may still be paying rent and utilities for premises they can no longer occupy. France has currently suspended rent and utility payments for small businesses but in the US and UK, landlords are being relied upon to do the right thing. 

The Coronavirus bill will give commercial tenants protection against eviction for three months and there are plenty of voluntary conversations going on between tenants and landlords. But with no end to the crisis currently in sight, more regulatory pressure could be brought to bear on rogue landlords seeking to exploit the situation.

It’s an unwise forecaster who tries to give a definitive date for the end of the Covid-19 lockdown. In China, attempts to restart the economy have stuttered and the 12-week timetable proposed by the UK Government looks optimistic. A commitment to increased testing and tracing with a view to a phased reopening of the economy could give SMEs the confidence to keep trading in troubled times.

There’s no doubt that the Chancellor’s rescue package delivers a huge stimulus on top of the measures he already announced at the beginning of March. The deal might not be perfect, but it goes some way to supporting the SMEs and risk-takers at the heart of the UK economy. Time will tell how much it needs to evolve to ensure the right support gets to the right people at the right time.