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The British Chambers of Commerce has introduced a “Coronavirus Business Impact Tracker”. Its first set of polling covered over 600 businesses and was conducted from 25-27 March. The results were recently published and unsurprisingly they make for grim reading. Possibly the most concerning finding was that 62% of firms have at most three months’ cash in reserve.

This finding may suggest that almost two-thirds of the UK’s businesses are in poor financial health. In actual fact, however, it is probably more likely to reflect the realities of 21st-century business combined with long-standing government policy.

Modern businesses often work on a “pay-as-you-go” basis

Recent decades have seen a massive shift away from businesses investing in (depreciating) assets which they had to maintain and replace. Modern businesses are much more likely just to lease/rent the facilities and equipment they need as they need them. This replaces periodic capital expenditure with operating expenses which are directly linked to the businesses needs and hence effectively prioritizes cash flow over capital reserves.

Interest rates have encouraged borrowing rather than saving

It has been a very long time since cash deposits generated any meaningful returns. As a result, for both businesses and consumers, they are increasingly likely to be something you hold as a necessity, or at least a convenience, rather than something you hold because you expect to be rewarded for holding them.

Borrowing, by contrast, has been relatively affordable for both consumers and businesses. Even though the super-low rates set by the Bank of England were invariably raised by the time they reached the high street, they were still priced just about as attractively as they could be.

This was particularly true of “safer” forms of lending such as mortgages and loans to established businesses. SMEs, especially smaller and/or younger ones, often had a much harder time accessing finance at any rate and if they were accepted for it, they usually had to pay much more than “safer” customers. That said, even for SMEs, the lending environment and the rates charged were both kinder than they could have been. This meant that it was not only perfectly reasonable to see borrowing as a way to deal with periodic cash-flow issues, but also as a way to facilitate growth.

debt relief

Lack of income plus debt is a bad situation for both consumers and businesses. Sometimes it’s a sign of bad financial management. In this case, however, depending on your point of view, it’s either a sign of bad decision-making on the part of the government or sheer bad luck. Regardless, it has the potential to drive healthy businesses into bankruptcy with catastrophic consequences for the UK economy as a whole.

Fortunately, the government has recognized this and has indicated that it is willing to do whatever it takes to keep the UK’s economy moving. It has introduced a substantial package of measures to help both businesses and consumers although many companies. The details of the package are extensive, but there are two key points SMEs should note.

The first is that the government is offering a taxpayer-backed, non-commercial loan scheme (the Coronavirus Business Interruption Loan Scheme) to assist companies with staying afloat and, in particular, paying furloughed staff.

The second is that the government, or more specifically, the FCA (presumably with the backing of the government) is proposing a freeze on credit card and loan repayments to allow both business and consumers to focus their cash on their essential outgoings. While this could be a substantial hit to lenders, especially larger ones, as has frequently been commented, it’s not so long ago that the same taxpayers were bailing them out in their time of need.


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