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Government-backed loans to UK businesses reveals horrible truth

Due to the rapid spread of Coronavirus Disease (COVID-19) and the toll that it took, the world has been pushed towards fear—halting life as we know it entirely. The blow on the economy was felt all across the world, with governments all over rushing to stem the pandemic to urge the economy to pick up once again.

The BBLS

With the economy on the ropes, the UK government attempted the ease the financial strain on the country’s small business sector, offering multiple government-backed loans for businesses affected by COVID-19. The announcement of the “bounce back” loan scheme (BBLS) amidst the pandemic has given hope to business owners, providing them an opportunity to keep their businesses from closing.

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Mid this week, the Treasury announced that more than two-thirds of the £31.3bn lent to businesses under state-backed bailout schemes has been through this loan set-up. Over 745,000 businesses have already jumped at the opportunity, pushing for just a small chance to make it out of COVID-19 with a working business.

The Dire Reality of the Loan Situation

The scale of the BBLS provides small and medium business affected provide up to £50,000 interest-free for a year, with very little qualifications necessary to get it approved. While this effort is a quaint touch form the UK government, it just proves how bad the situation is for small businesses. 

An estimated value of about £21.3bn has been provided for the BBLS, with over £3.8bn being released in this week alone. The tens of billions being loaned out in just a month have senior bankers worried about the fallout of these government-backed programs—with concerns rising over the possibility of borrowers being unable to pay debts.

The overwhelming support of the government may help in the meantime; but with the growing tension of another wave of the pandemic, the economy has yet to pull itself back-up. Business operations may push to resume, but consumers are hard-pressed to leave their houses just yet, with the lowered COVID-19 rates inkling a little bit higher each day.

The Urge for Compassion

City lobby groups have been clamoring for the government to provide a solution for the growing worry of debt. They may have found a voice amidst all this fear, with former Tory chancellor George Osborne speaking out the idea in their minds.

“There comes a point where it’s for the overall good of the country that you write off some of those debts even if they score as a loss on the government’s balance sheet,” Osborne told the Treasury committee.

The former chancellor furthered that although the Treasury might “hate” the proposition, but he adamantly pushed that this is the only way to help the UK recover entirely. While the immediate response of the government may be to extend terms and lower interest rates, he furthered that it’s the best option to “have a big act of debt forgiveness” instead.

The Bottom Line

With many economists viewing the situation as a precursor to worse times, the government has yet to fully act upon the threat of overwhelming debt for the numerous small business accessing their loans.

To receive the latest news on COVID-19’s effect and more economic news in the UK and worldwide, visit us at our Retail Sector website now! 

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