The Shorthand – here come the recovery loans!

Welcome to this week's edition of The Shorthand, your weekly digest of the top news stories that affect small businesses in the UK! Here, we break down the stories you may have missed during the week, detailing what they’re all about and, more importantly, why you should care.

And all that in under 5 minutes.

Go on, put the kettle on and we’ll have you caught up with the most pressing business news stories of the week by the time you’ve finished a cup of tea.

1. Small businesses struggle with rising insurance premiums

What’s happening here?

Small businesses in the UK are struggling with rising insurance costs as economists at the Swiss Re Institute forecast that global insurance premiums would hit a record high this year. This is mostly being driven by “rate hardening” in commercial insurance lines. Indeed, 60% of small businesses have seen their insurance premiums rise in the last year, according to a new report by the Federation of Small business (FSB).

The problem of rising insurance costs comes in tandem with the fact that three in ten small businesses say they find it hard to know what their insurance policies actually cover, according to the FSB research. For the smallest businesses in the UK, owners will often not have the knowledge needed to navigate the often overly-complex world commercial insurance. Roger Pollen, the head of the FSB in Northern Ireland, commented:

Small and micro businesses act more like individual consumers in the way that they buy insurance and the knowledge they have of insurance products and law.

Why should you care?

The main problem with rising insurance premium costs is that small businesses will have to face one of three negative scenarios:

• Pass the extra costs onto customers, making them less competitive
• Swallow the costs and risk not being able to invest in and expand the business
• Opt for lower levels of cover, leaving the business at risk of being underinsured

The final of these scenarios, involving underinsurance, is one that can leave a business at considerable risk. If a small business is left underinsured, they may find themselves in a position where they are unable to pay the legal and compensation costs of a claim against them because of the limitations of their cover. Also, with many contracts stipulating that a business must be covered for a particular level of liability, opting for lower levels of cover to save money can leave small firms in breach of contract.

The head of SuperscriptQ (our in-house advised insurance specialists) David Dickson commented:

Accepting being underinsured is a short-sighted, high-risk strategy. Whilst businesses are under pressure from inflation, not purchasing enough insurance is never advisable. In uncertain economic times, insurance should remain as a central pillar in protecting businesses.

Luckily, Superscript’s business insurance is flexible and adaptable, meaning that you can amend your policy anytime you need to, with no fees, to ensure you are never left underinsured.

60% of small businesses have seen their insurance premiums rise in the last year.

2. £6 billion small business loan package arrives this week

What’s happening here?

We were greeted with news on Monday this week that the successor to the government’s Recovery Loan Scheme for Covid-affected businesses will be offered a new package of support. The new Recovery Loan Scheme extension will make £3 billion per year available for the next two years, with the government underwriting 70% of lender liabilities (down from 80%) at the individual borrower level.

Under the original scheme, launched in April 2021, nearly 19,000 businesses in the UK were loaned an average of £202,000 each. Now, as the extension loan scheme is officially announced by the government, UK businesses will have access to more debt, with 70% of liability underwritten by the Treasury.

Why should you care?

For any small businesses interested in taking advantage of this new scheme, there are some notable differences between this and previous support packages. With the new package, the government only underwrites 70% of liabilities, as opposed to 80% previously, and lenders are now permitted to require a personal guarantee from the borrower, placing small business owners at greater risk.

Interestingly, industry experts and some in the business community deemed the original Recovery Loan Scheme a failure because it was itself notably less generous than previous schemes. As a result, far fewer SMEs applied than expected, with those that did often being rejected by the commercial lenders.

Gregory Taylor, accountancy group MHA’s head of banking and finance, claims the scheme:

Failed in its role of unlocking commercial lending for small- and medium-sized enterprises. The system is not working…with rising inflation and interest rates and the real possibility of a recession the government should use the end of the RLS to reboot commercial lending for SMEs.

This week’s announcement seems to present small businesses with both good and bad news. The £6 billion of largely government backed debt can help struggling firms through tough economic times. However, the less generous terms of these loans, the greater personal risk borne by business owners and the apparent failures of the previous scheme mean that businesses may wish to proceed with some caution.

3. UK retailers call for an immediate action on business rates

What’s happening here?

Business rates, the amount paid by businesses operating from a physical location like a retail shop, are recalculated every five years and the consultation process ahead of the next recalculation ends next week (25th July). So much has happened since the last recalculations in 2017, from Brexit to record inflation, supply chain breakdowns caused by war in Europe to the global Covid-19 pandemic that it's hard to predict how the revaluations will unfold.

As the end of the consultation approaches, the British Retail Consortium (BRC) has called on the government to urgently address the way in which changes in business rates are calculated around the country. A process called ‘transitional relief’ is undertaken to stop those businesses whose rateable valuation has gone up significantly paying too much more in rates, but it also means that those businesses whose premises’ rateable value has gone down will not see the full benefit of the drop in business rates.

In fact, in England, retailers whose rates increased after 2017 have received £633 million in rates relief while those valuation went down have had £1.28 billion in rate relief withheld.

Why should you care?

For any small business that operates in a physical commercial property, the issue of business rates is of huge significance to whether or not that business can survive and grow.

The potential impact on small businesses is considerable. An expert in the field, Jerry Schurder from the property consultancy firm Gerald Eve, commented that unless changes were made to the process of transitional relief, retailers could lose out on up to £1 billion in the next three years. This is because, in Mr. Schurder’s opinion, upward relief would be limited and downward relief would be far more substantial.

None of the contenders for the Conservative party leadership (and by extension, the office of Prime Minister) have said they would cut business rates if they were placed in power, instead focusing more urgently on cutting corporation tax. This means that the process for calculating transitional relief is as important as ever for small businesses.