An article by Simon Jack, Business Editor of BBC (see full article in link below) presents a very interesting view on the specifics of government’s measures to minimise the impact of the pandemic on employees, small businesses and the economy in general.
In summary, the government require banks to provide loans of up to £250,000 for business owners without the requirement of a personal guarantees and for loans over that amount, banks also cannot ask for guarantees in excess of the 20% of the loan (with government guaranteeing the other 80% which would be a disingenuous thing for banks to do if they considered doing this).
But what this indicates is that whilst government has given an 80% guarantee, this is to the lender and not those who take out the loans – small businesses and individuals. In addition, the banks are borrowing from the Bank of England at a near zero interest rate (0.1%), yet there’s no cap to how much high street lenders can charge in interest when they give out these loans (with some reportedly charging over 7.5%). Repaying the loans and interest will still remain a liability of the borrowers at the end of the repayment holiday.
How helpful such arrangements is in reality to those small businesses who help keep the economy ticking is anyone’s guess. And the mantra, “we’re all in it together” might sound a bit hollow from the banks if they are perceived to be profiteering from the government ‘largesse’.
On the other hand, big organisations who need to tend to shareholders are well within their right to pay out dividends as scheduled, but then, should such organisations then turn to government for a bailout with the bill footed by the taxpayer?
The damage to the economy in the medium to long term will be real and whether the government measures had intended consequences for the many rather than the few will be judged by history.
https://www.bbc.co.uk/news/business-52176668#