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Budget should be used to avoid a business cash flow crisis

The Chancellor must use his Budget to help businesses avoid a cash-flow crisis as lockdown eases, says Richard Churchill.

The Chancellor must continue to support the cash flow of businesses by extending and enhancing the basket of measures so far introduced. Critical to this is allowing the same options to those businesses who borrowed under the Coronavirus Business Interruption Loan Scheme (CBILS) as currently exist for Bounce Back Loans. This would provide businesses with more time to get back on their feet as starting repayments can be delayed, be interest-only for a period and spread over a longer timeframe.

The repayment period should be 10 years not the current five. The economic impact of the pandemic has gone on for much longer than initially envisaged and the Chancellor needs to reflect this in his Budget by giving businesses more time.

The Chancellor is clearly aware that more time is needed by businesses to repay the support measures and has demonstrated this by rightly allowing businesses 12 months to repay deferred VAT as well as permitting other time to pay arrangements.

Providing flexibility in the repayment of CBILS loans will greatly assist those businesses struggling with cash flow as lockdown eases. Additionally, the window to make applications for both CBILS and Bounce Back Loans should be extended to 30 June as businesses can now plan for 2021 with greater clarity, given the Prime Minister’s announcement, and better understand their cash requirements.

The Chancellor should also be considering additional measures to support business cashflows. He should allow businesses to either surrender their tax losses incurred during the pandemic for a cash receipt or allow businesses to carry back losses for an extended period of up to three years to recoup previously paid Corporation Tax.

This would allow businesses that have been viable and previously paid tax to enjoy a cash-flow advantage now which is critical to them, but then also as soon as profits are made in the future pay Corporation Tax on them and so repay these monies to the Chancellor. A genuine ‘pay as you grow’ scheme.

Many companies have taken on large levels of debt and there is a risk of a swathe of zombie companies forming, which would be bad for the economy as business would only exist to service debt as opposed to grow and invest in new ideas or products.

Hopefully the Chancellor has a creative solution for these businesses which could be to allow the debt to be converted into equity held by Government or a specially created fund for private investment.

Reducing the debt levels would allow businesses to grow and flourish and the equity stake held by Government to increase in value. This would allow businesses that benefited from the support measures to pay the money back and provide an equitable split between the Government, business owners and potentially private investors.

Perhaps the answer will be the Successor Loan Scheme, which was announced in November with no details provided, which we hope to hear more about in the Budget.

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