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The news that we all feared has arrived – the UK is now officially in a recession as reported by BBC News this week. Whilst this isn’t a surprise at all, it is a recession like no other given how it started. Recessions are of course cyclical, and we were due one in the next few years after the 2008-9 financial crash, however Covid19 has simply hurried it along. Never in living memory have we had all but essential businesses shut for three months. Never has there been such a…we don’t want to say unprecedented as it’s one of 2020’s most over-used words…colossal bail out scheme for individuals and businesses.
It has been saddening to hear about the high levels of unemployment as this will have a huge impact on people both professionally and personally. And these figures are likely to rise, especially when the Coronoavirus Job Retention Scheme (Furlough) ends on 31 October 2020. Whilst it has been a lifeline for many businesses, this level of government support cannot continue, and the UK needs to pull together in order to survive this most unusual, global recession.
The Office for National Statistics (ONS) reported that the economy bounced back in June as government restrictions on movement started to ease. Their report stated:
“On a month-on-month basis, the economy grew by 8.7% in June, after growth of 1.8% in May.”
However, Jonathan Athow, deputy national statistician for economic statistics, said: “Despite this, gross domestic product (GDP) in June still remains a sixth below its level in February, before the virus struck.”
Their research shows that the collapse in output was driven by the closure of shops, hotels, restaurants, schools and car repair shops.
The services sector, which powers four-fifths of the economy, suffered the biggest quarterly decline on record.
The reported uplift in the economy since June, as the lockdown restrictions began to ease, has been positive. As the world adjusts to ‘the new normal,’ TVAF is pleased to report that many of our clients have seen a notable increase in productivity/demand.
There will definitely be winners and losers in this recession and predictions suggest that between 40-50% of businesses will default on their bounce back loan, which could be detrimental for the banking sector. Once the schools return and we head into colder weather, there is the threat of a second wave and localised lockdowns, which could make the situation worse. TVAF would advise all businesses to get everything in order when the government funding ceases:
Many businesses could have hidden assets in their balance sheet which will help them to get ‘cash flow fit’ to ensure they can weather the storm. For example, TVAF has helped a number of our clients with successful asset refinance (often known as equity release) in the past:
Many businesses have assets that they own fully as they have completed their HP/Lease payments, or they are very near to the end of their finance term. In this example, we helped a precision engineering company to finance their business growth by refinancing a number of CNC lathes and mills. If you need a cash injection to help your business to survive, refinancing your existing owned assets is a great way to do this.
There could be opportunities to grow if you’re looking for acquisition. However, if lending is looking uncertain, it is possible to use the assets within a new business to finance your acquisition. This is called ‘sale and HP back’. Find out how we supported one of our transportation clients when they recently purchased another business.
Many people will find themselves out of work and have no choice other than to set up their own business. We recently helped a Kent-based tyre fitter to purchase the equipment he needed to grow his business after a very short time in operation.
To summarise, the impending recession is not a surprise to anyone and there will no doubt be some tough times ahead until a vaccine is found. However, business owners can get their cash flow in good order so that they are prepared and able to weather a further downturn in the economy. If you would like to speak to one of our team about how we can help your business in arranging asset finance or a business loan, please get in touch via email@example.com or call us for a free no obligation review on 01635 785 400