The UK government’s loan scheme to assist businesses hit by the coronavirus outbreak has been overhauled. Initial measures, including government guaranteed loans amounting to £330 bn were announced in response to the disruption caused by COVID-19. However, several problems with the scheme have since been identified and changes have been made.
The changes are focused on expanding the eligibility criteria, removing the need for personal guarantees, and aiding the businesses that fall between the available schemes.
With large parts of the economy shut down and the country facing recession, the government introduced a raft of measures to supplement those already included in the 2020 Budget. These included The Coronavirus Job Retention Scheme, a Statutory Sick Pay package and a deferment of VAT. However, most problematic has been the Coronavirus Business Interruption Loan Scheme (CBILS).
The CBILS offers a loan of up to £5 million for up to 6 years for SMEs through the British Business Bank. There is also a ‘business interruption’ payment made on top of this to cover any interest or lender levied fees for the first 12 months. However, despite 130,000 enquiries, only 1000 firms have accessed the loans so far and £145m has been lent from the earmarked £330bn.
Why such a low level of engagement? “Only businesses that could not receive a loan on commercial terms could apply for the guarantee. As a result, some businesses were quoted interest rates of 30%” explained Sam Dumitriu of The Entrepreneurs Network. “While others who had qualified for the guarantee were asked to provide personal guarantees (even after the government had requested that banks don’t ask for them).”
After discussions with SMEs, the government has changed the criteria. Applications will no longer be limited to businesses that have been refused a loan on commercial terms. This will increase the number who can benefit. Though the Treasury has not capped the interest rates banks can charge, banks will be prevented from asking company owners to guarantee loans with their own savings or property when borrowing up to £250,000
There exists a “missing middle” of businesses which are too big to benefit from CBILS but too small to access the Bank of England’s financing facilities
The Entrepreneurs Network, who are conducting a survey of SMEs, startups and scale-ups to assess how the government measures are operating on the ground, also identified another group who stand to lose out. There exists a ‘missing middle’ of businesses which are too big to benefit from CBILS but too small to access the Bank of England’s Covid-19 Corporate Financing Facility, which allows the Bank to buy short term debt from larger companies to assist with cashflow.
In response to feedback from this ‘missing middle’, the government has introduced the Coronavirus Large Business Interruption Loan Scheme (CLBILS). Larger firms with a turnover of up to £500m will now also be eligible for more help. The scheme provides a government guarantee of 80% to enable banks to make loans of up to £25m available to firms with revenues of between £45m-500m.
This is welcome news for many, though numerous challenges remain. There are other groups identified by the Entrepreneurs Network who are still not eligible for assistance: “By insisting that only businesses that were profitable before the crisis hit can access the loans through the CBILS, most startups and scaleups are locked out. Venture-backed startups typically run large losses early on, as they invest in growth.”
Whether the needs of these groups will be addressed remains to be seen. However, given the scale and the speed of this process, revisions like those announced today were always likely and more may follow. We will keep you informed of any further developments as they occur.
If you would like to discuss the CBILS, CLBILS, or any of the other measures available in relation to your own business or require other information or support during these unprecedented times, please do not hesitate to contact us here at firstname.lastname@example.org
Complete The Entrepreneurs Network survey, mentioned in the article, here.