Press Release

Hole in Pre-Budget Report’s small business life raft

27 November 2008

R3, the trade body for insolvency practitioners supports the Government proposals to help small firms but warns that not all businesses can be saved.

R3 President Nick O’Reilly said of the pre-Budget report: “We believe that there needs to be a return to more responsible business management. Companies should be encouraged to re-capitalise or restructure rather than borrowing their way out of trouble.

“In general there is no quick fix. There will be an increasing number of small businesses struggling over the next couple of years, a number of whom will go to the wall.”

The new Small Business Finance Scheme is a £1bn temporary guarantee scheme which will enable small companies to borrow between £1000 and £1m from the bank on flexible terms, with the government backing the loans.

Nick O’Reilly continued, “We believe that the Small Business Finance scheme has the potential to assist those SMEs who have been brought to their knees by the current economic downturn. However we caution that these loans will require very sensible and stringent criteria in order to help the businesses which need protecting.

“For the last three or four years a number of businesses that perhaps were not performing well have been kept alive artificially by the easy availability of credit, which has now dried up. However there are also a number of strong businesses which have been badly hit through factors, such as the housing market standstill, which will begin to revive in due course. The Small Business Finance Scheme must help these viable businesses to weather the storm rather than providing further life support for businesses which were already heading towards failure.

“The pledge of a further £15m towards providing free debt advice to individuals is a step in the direction of fiscal responsibility. However the same logic was not as apparent in the raft of measures introduced to protect small firms, many of whom are still waiting until it’s too late to seek professional advice.”

R3 welcomes the introduction of more generous tax relief for businesses making losses, as well as the HMRC Business Payment Support Service, which will allow businesses in temporary financial difficulty to pay their HMRC tax bills on a timetable they can afford.