From pre-Budget leaks to post-Budget photo opportunities, the headlines around the chancellor’s speech can be deceptive, with the key details emerging days or even weeks later. So, forget the pictures of Rishi Sunak toasting his cuts to alcohol duty in a brewery: here, we ask our experts what last month’s announcement really means for SMEs, including those planning to borrow via the Recovery Loan Scheme.
Does the Budget spell positive change for the UK’s SMEs?
- Office for Budget Responsibility forecasts growth of 6% in 2022
- Changes to business rates include 12-month relief for firms to invest in premises, worth £750m
- Planned increase in business rates multiplier will be cancelled – worth £4.6bn over five years
Joanna Scott, managing director: “Rishi Sunak’s speech revealed an economy accelerating out of the Covid-19 pandemic but facing a double whammy of post-coronavirus and post-Brexit supply-chain disruption and rising inflation. These are both issues that will affect SMEs.”
Ryan Sorby, head of the north and Scotland: “The Budget provided some supportive measures for SMEs, which will reduce uncertainty and at least enable firms to prepare a plan. Such support could always go further, but on reflection, it is fairly balanced.”
Edd Hatfield, group chief financial officer: “Unfortunately, 6% growth from a crashed position isn’t as impressive as it sounds. However, maintaining R&D tax spending is an example of the ongoing support that will be the lifeblood of many SMEs, as they struggle with rising costs and taxes. Cutbacks in this area could have been disastrous for businesses with spending plans.”
Carl Giannotta, group head of fundraising: “Although the OBR forecast is cause for positivity for investors in the SME space, there is likely to be a wide disparity between those businesses that are flexible and innovative enough to execute their growth plans effectively into 2022 and those that are counting the cost of a difficult 18 months. Backing the right businesses has never been more important.”
It appears that the tech sector – in which BOOST&Co has deep expertise – will benefit.
- £20bn to be invested in research and development by 2024/25
- R&D spending to reach £22bn by 2026/27 (two years later than planned
- Tax relief for business R&D spending limited so that it only applies to domestic activities
Edd Hatfield: “The expansion of the R&D tax credit to include spending on data and cloud costs will benefit our technology businesses. In addition, the temporary increase in the annual investment allowance, from £200,000 to £1m, has been extended until March 2023. This means that companies can invest during the next 18 months without worrying about the current lack of supply of plant and machinery, enabling management teams to act on their growth plans with more certainty.”
Ryan Sorby: “R&D credits are extremely helpful for the innovative businesses we fund and for the tech sector in general. Nowadays, most sectors are undergoing digital transformation in some form, so these credits will be widely used. Of course, another key factor for SMEs is finding a lender like BOOST&Co that can fund R&D, alongside product development and new staff.”
Does the Budget affect finance options for SMEs?
Joanna Scott: “The government-backed finance schemes introduced to soften the impact of Covid-19 are now unwinding, so the banks’ lending to SMEs is likely to return to low pre-pandemic levels. BOOST&Co will continue to focus on funding SMEs regardless, as we believe that this market is systematically under-served. In terms of products, working capital – provided by our sister company, Growth Lending – and loans with a degree of protection from rate rises are worth considering.”
Carl Giannotta: “Investors will have expected government schemes to start tapering off as we get back to something approaching economic normality. UK SMEs, especially growth and technology-enabled businesses, have proved to be resilient in the past 18 months, and this continues to be an exciting, innovative and diverse place to be for institutional investors, with strong underlying growth drivers as we move into 2022.”
What do you think of the changes to the Recovery Loan Scheme (RLS)?
- Initiative extended by six months, to 30 June 2022
- From 1 January, the scheme will only be open to SMEs with turnover of less than £45m
- Maximum amount available will be £2m per business or £6m per group
Ryan Sorby: “The extension to the scheme is a positive development, as it will provide liquidity to lenders and SMEs, but this doesn’t necessarily make it easier to access funds: to make a real difference, the scheme still requires lenders with an appetite to back growing businesses. That’s what we offer in our term loans under the RLS, but the appetite will vary significantly between lenders, so be proactive and contact funders like BOOST&Co to establish your options.”
Joanna Scott: “The deadline on 31 December is swiftly approaching, so if you want to borrow more than £2m through the RLS, apply now. The guarantee provided by the government to lenders falls from 80% to 70% from 1 January, so some lenders – though not BOOST&Co – may feel less incentivised to provide loans under the scheme next year.”
What is the feeling among business owners?
Joanna Scott: “The recovery from Covid-19 is providing many opportunities for UK SMEs to expand and grow – M&A is particularly strong right now – and we expect this to continue for at least the next 12 months. Many business owners will want to pursue growth opportunities after the recovery schemes have come to an end, and they may wonder where this finance will come from.
“Owners feel that there is a positive attitude towards UK business growth and backing for innovation, but many are either unaware of the support available or find it hard to access, so we are working with a number of organisations to educate SMEs about their options and give them better access to growth finance.”
The green shoots of growth are already visible, despite the difficulties of the past 18 months, so if your firm is looking for funding, get in touch to find out how BOOST&Co can help. And don’t forget that if you want to take advantage of the extended Recovery Loan Scheme, the time to act is now.