Tech firms unable to access emergency bailout money because they invested in expansion and innovation

UK tech companies have expressed concern that they have been unable to access Rishi Sunak’s emergency bailout scheme because they invested heavily in expansion and innovation before the crisis struck.

According to reports in The Times the founders of a dozen leading tech companies have written to the chancellor asking him to find a way for their industry to access the government’s lending schemes.

The firms say that because they have invested in expansion and innovation in preference to “short-term profitability”, they are unable to obtain support.

They point out that “the high-growth tech sector has a vital role to play in the future success of the UK economy”, urging Sunak “to work with us to ensure that it is helped through the crisis and that the UK is still the best place in the world to build a tech company.”

Loan approval rate

The calls come after the Federation of Small Businesses said that “very few” applications of its members had been approved and urged Mr Sunak to keep all options on the table if the situation failed to improve.

“We’re hearing reports that — despite these being ‘emergency’ loans — the application process for securing them is still very demanding,” Mike Cherry, the federation’s national chairman, said.

“Of course lending can only be made to viable businesses, but banks need to understand that time is of the essence.”

According to the latest reports just 2,022 loans have been made to the UK’s small and medium-sized firms through the government’s scheme.

There have been around 300,000 applications so far. That means a paltry 0.65 per cent of enquiries have resulted in coronavirus business loans.

Unwilling to lend

The London Economic exposed that one of the reasons for this is that the banks are unwilling to lend cash on the current terms, which are closer to a 50/50 punt than a guaranteed loan.

With the government only offering to share 60 per cent of a bank’s total losses rather than 80 per cent, lenders face a materially different calculation as to their exposure.

Combine this with the risk averse institutional set up within lenders that has been hammered into them since the banking crisis of 2008- entirely designed to ensure they do not make loans which bear any risk – and you don’t have to be an economist to figure out the result.

The post Tech firms unable to access emergency bailout money because they invested in expansion and innovation appeared first on The London Economic.