Getting cash quickly (i.e. now) into suffering businesses

There is a lot of concern for businesses in the current ‘Lock Down’ and particularly those smaller operations which rely on consumers spending day to day money; pubs, restaurants, gym’s etc.

Personally, I’m more concerned for UK Plc if those businesses fail rather than the large Corporates, such as airlines. These have more capability to rise from the flames again with corporate borrowing powers to restore their financial health (assuming they can present a robust business model of course). They may also have failed to build reserves through dividend policies.

The ‘smaller guy’ has invested so much in their business and, in reality, given the last few years, has lived on slim pickings for a while, preventing them from building up reserves. Those businesses could fail within days.

Many of us in the world of commercial finance have shuddered at the thought of the Government’s rescue package being routed through the banks as a replacement of the EFG scheme. It will not get out to where it is needed anywhere near quick enough and many firms would ‘die trying’. Of most concern is the eligibility criteria that the business should be ‘viable’ – far too subjective and not wise to leave such a ruling to be left to a bank underwriter (although I promise them we love them and I was one once!).

I can also imagine discussions going on behind closed doors in the banks about them not wanting to be involved in such a scheme. It will add to their costs significantly, stop them from doing more productive support and they are bound to get flack for whatever decisions they make

The more I think about this the more I like the idea hidden away in an article yesterday by Patrick Hosking, Financial Editor of The Times. He floated the idea of a ‘refund’ of past Corporation Tax paid. This would of course be expensive but has merits:

  • It will go straight back to the businesses themselves
  • It is a way of determining the scale of the business if we are to (sensibly) apply some kind of matrix of size of support.
  • There is a proxy measure of how ‘viable’ a business is – given that if they were not successful, they would not have generated much profit to be taxed in the first place.
  • Businesses that have been suppressing their profits (to avoid tax) will find that there is a cost to that
  • These are the businesses that have ‘paid their dues’ and contributed to the purse and arguably have earned some flexibility.
  • The Government know who they are, where they are and probably their bank account details.
  • It could be done as a ‘loan back’ so the funds come back in time and those businesses doing well would have the option not to avail themselves of this

Decisions would need to be made about how many years to go back, how to reflect variations in trading and what percentage to pay back etc.

It isn’t a perfect solution (how do you deal with newer businesses for example that haven’t got a Corporation Tax history) but far far better than asking the banks to be ‘nice and understanding’ to our businesses when they are asking for help