News & Analysis

A year on, will British businesses really repay the 'Free Money' loans?

Andrew Saks, Monday, 12 April 2021

The inevitable moment that many self employed individuals, company directors and freelancers across the United Kingdom have likely been quietly dreading - the stark reality that after a year of forced closures, there is no such thing as free money.

Whether it can be regarded as a clever ploy by the authorities to keep the public malleable and compliant whilst continued lockdowns are maintained, or whether it is considered a genuine lifeline for businesses and freelance professionals whose interests would have been preserved in a very different manner during the 1980s era of Thatcherite private entrepreneurism by opening the pathway for business rather than closing it by mandate and forcing them to go to the wall or be given money with a deferred repayment date with no underwriting.

To repay or not to repay? That is the year long question!

For many small to medium sized enterprises, an unexpected closure of their trading activities for an unknown length of time was enough to scare the owners of said enterprises into clinging to what they were told would be a government-funded lifeline, when in reality it was a bank debt.

The state closed off the ability to generate revenue, and then made the owners of the businesses responsible for paying for government policy. What does it matter? Repayments aren't due for a year, echoed the responses from many businesses who faced either bankruptcy or to take the payouts.

Surely in a few weeks all will be back to normal, they thought. Some even mulled the consideration that they would profit from these payouts. Here we are, a year later and the boards are still over the windows, and the shutters still down.

The difference is that after a year of zero revenues for a huge number of businesses and Britain's five million self employed, their businesses are now not attractive acquisition or investment prospects, and with the government's cleverly disguised 'lifeline' are left in a position where they now have to begin paying the oxymoronically named Bounce Back Loans to the banks.

Many could easily reject the repayment and declare insolvency, leaving the state with the debt, as underwriting was bypassed in exchange for banks receiving government guarantees.

Whose debt is it anyway?

Should this occur, the government will be left with billions of pounds of debt, and no means of repaying it other than taxing the remnants of a broken economy until the pips squeak, or, perish the thought, quantative easing - known in layman's terms as printing money, and we all know how that has worked out for despots such as Nicolas Maduro in Venezuela and every dictator... er, I mean President in Argentina since Juan Peron came up with the concept of curtailing personal freedom and forcing the handover of wealth to the state.

Such a scenario in Britain would not be so dramatic, but it would render the British Pound weaker, especially if it is circulated at higher levels to pay government debt.

In the United States and mainland Europe, no such furlough or loan schemes have been so intrinsically embedded into the day to day economy, meaning that paying people for compliance in the long term could result in a moribund exchange rate.

Thus, Euro, Dollar and Pound will have an interesting relationship over the next few years ahead, especially given that most Bounce Back Loans were granted on a three to four year repayment term.

One well worn theory is that many business owners viewed these loans as free money due to their government guarantee. If not repaid, a company can simply declare insolvency and lump the government with its commitment with absolutely no recourse from the banks.

Go figure... literally!

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