Businesses in the UK are still feeling the effects of the coronavirus pandemic and government aid is proving to be underwhelming. So, to help with the effort, one of the UK’s biggest investors has announced their intention to pledge £15 billion to help smaller businesses that are struggling to repay state-guaranteed coronavirus loans.
Below we briefly explain the nature of the fund as well as outline their investment plan.
A little background
The British government has paid the salaries of more than 10 million people and has provided more than £30 billion of state guarantees for loans and grants. To date, 43 000 businesses have borrowed more than £8 billion through the Coronavirus Business Interruption Loan Scheme (CBILS) alone.
Unfortunately, government packages like these are not sustainable in the long run and as a result, Stephen Welton, the head of the Business Growth Fund, is aiming to collect enough equity from private investors to help recapitalise companies that are finding it particularly tough to survive.
What is the Business Growth Fund?
Founded in 2011, the Business Growth Fund (BGF) is a private investment fund that was founded by five of the largest banks in the country: HSBC, Barclays, Lloyds, RBS and Standard Chartered.
Its original aim was to support small and medium-sized enterprises (SMEs) to recapitalise in the wake of the 2008 financial crisis. The BGF has invested more than £2 billion in SMEs in the past and poses an opportunity to help further during the 2020 economic struggles.
What’s the plan?
Primarily aimed at businesses which have borrowed through the CBILS, Stephen Welton aims to collect £7.5 billion in equity from banks, pension funds, insurance companies and sovereign wealth investors. This number should also be matched by the government to total £15 billion in equity as an SME aid package.
The BGF will recapitalise businesses that have strong fundamentals as well as the potential to grow in the post-coronavirus world and this means that not everyone will be able to benefit.
Why has this decision been made?
Despite the government providing huge relief packages, many are concerned with the inability of these businesses to pay the money back in the future. From a macro-economic point of view, if unsustainable debt levels rise, then businesses, banks, and workers could be in danger and they could find themselves in a similar situation to the 2008 financial crisis.
Funds like these are not new phenomena and the BGF will be looking to create positive change during and after the crisis.
In the meantime, if you feel that your business is struggling during these turbulent times and would like to speak to someone who can give you expert advice on your next steps forward, then please don’t hesitate to give us a call.