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Team Talk: what does the Budget really mean for the UK’s SMEs?

Our experts explain the benefits of R&D credits and why now is the time to use the extended Recovery Loan Scheme

Ria Hopkinson
22 November 2021

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?

Key points:

  • 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

Lauren Couch, managing director:The extension of the Recovery Loan Scheme until June 2022 is positive news for SMEs, as are the review of business rates and the extension of the temporary increase in the annual investment allowance. But with corporation tax rising to 25% and a 1.25% increase in employers’ National Insurance contributions, cash flows could suffer, so the hope is that the projected economic growth will soften that impact.”

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 firms 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 Growth Lending has expertise – will benefit.

Key points:

  • £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

Lauren Couch: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.”

Does the Budget affect the amount of money available to SMEs?

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)?

Key points:

  • 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

Lauren Couch:We welcome the extension of the scheme, which will continue to provide much-needed support for SMEs to implement their growth and recovery plans in the wake of Covid-19. However, from 1 January 2022, only small and medium-sized enterprises will be eligible, and the funding available will be capped at £2m per business, so larger firms will need to find alternative sources of funding if they do not submit a successful application by the end of this year.”

Jack Trowbridge, commercial director: “The extension has enabled the British Business Bank to accredit more lenders as providers of the scheme, so SMEs will benefit from a greater variety of funders offering a broader range of options.

”The accreditation of lenders has been drip-fed, so new additions to the scheme, especially alternative lenders, might have more appetite to lend – and could lend larger amounts – than the traditional funders who came on board earlier this year. We will offer facilities under the scheme until it closes, but the funding cap of £2m per business comes into force soon, so I would advise potential borrowers to be proactive and enquire now.”

How are business owners handling the end of the government’s schemes?

Jack Trowbridge: “We have worked closely with our clients throughout 2021 on managing their facilities under the Coronavirus Business Interruption Loan Scheme [CBILS], as their 12-month interest-free holidays come to an end. Many have chosen to maintain their facilities, taking on the interest payments themselves, but a number of those who wished to repay have moved to another Growth Lending product – typically flexible invoice discounting – to keep on top of their cash flow.”

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 Growth Lending 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.