The furloughs and loans are useless to small businesses

The small business community has been watching with great hope to see if the government will introduce measures that are useful for them to survive this period. Alas, those announced are absolutely useless for small companies, which make up an extremely significant portion of the UK economy.

Coronavirus Business Interruption Loans require companies to take on huge debt that will only cripple and drive them into bankruptcy later on, because in a much diminished economy it will be ten times harder to service a loan. Not to mention it necessitates telling the bank manager your business is in distress.

Furlough measures require small firms to have cash reserves now to pay staff in the hope of a rebate for the wages later. Most small companies, if they are laying people off, do so because there is no cash in the kitty left to pay them. You propose to have small companies eat into precious cashflow on the promise that at some undefined point in the future the wages will be repayable. 

Moreover, the furlough measures require the staff not to work during the period, meaning there can be no productivity from their desks during this time, and no benefiting from the eventual ramping back up of economic activity at the other end, as it overlaps with a still paralysing but gradually alleviating lack of cashflow. 

It’s true that for an airline or large business the furlough device amounts to a bit of bookkeeping, as they can afford to pay the wages out of cash or existing debt facilities and then leave it on the books as a credit due to be covered by government. No problem.

But for a small company, it is much more attractive to simply lay everyone off, sit on the existing sales ledger to keep indispensable suppliers up to date and wait it out in hope till the other side of the curve. The furlough designation makes it so small firms are legally bound to pay the wages now, and having foregone redundancy from their arsenal of protective action, they will be prevented from enacting other cash-preserving headcount measures if the economic situation deteriorates further. 

The risks attached to the two ‘assistance’ policies brought forward by the government are therefore so severe as to be untouchable. 

What is needed is for the government simply to pay the wages of those whose jobs are deemed at risk, with no special requirements. That would cost no more than what the government already proposes, it allows those staff to keep working, and it reduces the potential for the lockdown-related temporary redundancies to become permanent. 

The alternative is everyone is laid off anyway: no small business in their right mind will pay furlough wages out of dwindling cashflow and wait to hear from HMRC on a rebate. They would all rather divest.