The UK Treasury has announced a new scheme which will see as much as £1 billion made available to UK SMEs who are struggling financially during the COVID-19 outbreak.
The news will certainly provide some relief for companies which might be placed under notable strain thanks to decreased cash flow in recent weeks, but there are some strings attached to the cash.
“Britain is a global leader when it comes to innovation,” said Chancellor of the Exchequer Rishi Sunak. “Our start-ups and businesses driving research and development are one of our great economic strengths and will help power our growth out of the coronavirus crisis.”
“This new, world-leading fund will mean they can access the capital they need at this difficult time, ensuring dynamic, fast-growing firms across all sectors will be able to continue to create new ideas and spread prosperity.”
The £1 billion will be broken into two pots, the first of which will be known as the Future Fund. This fund comprises of £250 million put forward by the Treasury for high-growth companies impacted by the crisis, with relevant companies able to apply for 36-month loans between £125,000 and £5 million.
To be eligible for these loans, companies would have to fit the following criteria:
- Must be an unlisted UK registered company
- Raised at least £250,000 from private parties in previous funding rounds within the last five years
- Can match the Government loan with funds raised from the private sector
Although the Government is boasting of a ‘£500 million’ future fund, it is only providing the cash for half of this. The remaining £250 million will be provided by the private sector, and loans will be void if the applicant is not able to match the Government cash with private investment.
This condition does make it a bit more difficult for companies to apply for the funds, though at least the Treasury is dipping into the bank accounts to aid SMEs during this period. This is of course a segment which is under-threat.
The SMEs are an interesting segment of the economy, as while they are certainly big enough to cause disruption, when cash-flow is compromised, these are companies which potentially look very fragile. In some areas of the economy, this could have a significant impact to competition, as bigger corporations are much more secure thanks to bigger bank accounts, as well as investors and lending facilities to fall back on.
For example, as a multinational corporation with a very large corporate finance division, the Vodafone Group can access €13.6 billion in cash and other lending facilities during difficult periods (Annual Report – Page 51). Smaller companies would not have these facilities and/or security, while few (if any) organisations could have predicted there would be a crisis of this nature to prepare for.
Should these SMEs not be protected by the Government, there is a risk of bankruptcy or acquisitions. Both outcomes could dent the competitive landscape, or impact the UK’s ability to lead the way to the next digital economy.
The second pot of cash will be directed towards R&D firms who are likely to be burning through cash at a much faster pace.
“We are the tech and creative capital of Europe, and it’s crucial to maintain our place,” said Secretary of State for Digital, Culture, Media and Sport, Oliver Dowden. “This funding will protect high growth businesses and enable the unicorns of tomorrow to thrive so that tech is in pole position to drive our post COVID recovery.”
This £750 million fund will be carved into several different categories, but ultimately is aimed at supporting SMEs who work in the R&D world.
Starting with Innovate UK, the UK’s innovation agency, £200 million of grant and loan payments will be made immediately available for the 2,500 firms it counts as customers. An additional £550 million will soon be offered to the same firms, while this secondary pot will also provide £175,000 loans to the 1,200 (roughly) R&D firms not currently in receipt of Innovate UK funding.
“techUK welcomes the support being made available today by Government,” said Julian David, techUK CEO. “The businesses that will be supported by these schemes represent the innovative companies of tomorrow. techUK will continue to work with Government to clarify how the schemes will work in practice to ensure the broadest range of companies can benefit from this lifeline.”
The SME and start-up community has been calling for additional support from the UK Government for weeks and this is a good starting point. It will not be perfect, as some firms will slip through the bureaucratic cracks, but as this is an unprecedented crisis mistakes will be made. This is a positive step forward, however.
With 5G on the horizon, a new digital economy will emerge. 5G is much more than doing things faster than 4G, as it will give rise to new products and services which are not imaginable today. New companies and new fortunes will be created, but if a nation does not protect the start-up community and the innovators who are working on these ideas, the profits will of course be captured elsewhere.