Government needs to remove EU rules from bank loan conditions to save British jobs

The CBILS and CLBILS Loans schemes currently require UK businesses to pass an EU “Undertaking in Financial Difficulty” Test. This is unnecessary and damaging.

It’s ironic that at the UK’s first major opportunity to regulate for ourselves, we have turned to an EU Regulation that the Commission itself has now stated isn’t required in the current crisis.

The criteria are based solely on historical Balance Sheet Data. If UK businesses fail to meet the criteria, then they are simply excluded without appeal from the loan applications process, bringing probable failure and subsequent loss of jobs to potentially viable businesses.

This is especially critical in the CLBILS scheme for larger businesses, where the Chancellor has announced that as at 12th May only 59 businesses have so far been awarded a CLBILS loan, out of 359 Applications to date. Let’s reflect on that. To date, of those UK businesses with turnover greater than £45m, only 59 have been supported by a loan, when thousands of workers are at risk. No figures are published for those businesses that have been disqualified because of the test criteria.

It’s difficult to understand why the UK is adopting a 2014 EU definition of an “Undertaking in Difficulty” when the Commission has already agreed that Government support can be given to help such businesses.

In a document issued by the Commission in March they stated: –

Member States can notify to the Commission aid schemes to meet acute liquidity needs and support undertakings facing financial difficulties, also due to or aggravated by the COVID-19 outbreak. (Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak)

As a businessman this seems unequivocal.

We simply cannot refuse support to businesses on the basis of a balance sheet test or financial ratios that were set for another purpose at another time.

In my own field businesses that have already completed successful turnarounds are particularly affected. Successful turnarounds rarely have time to repair damaged balance sheets in the short term.

Larger businesses will also often have more complex funding structures that don’t fit the one-size-fits-all criteria.

Anecdotally loan applicants’ customers are already concerned that their supply chain is under threat from this prescriptive selection process.

The UK should not be putting up artificial barriers to help. There’s no guarantee that any business will be fit or agile enough to take on the additional debt afforded by the loans. Let’s leave the decision about who are or aren’t fit to the Lenders operating the schemes. Their money is at risk as well, we should trust that they will only approve applications from those judged best equipped to meet the challenges ahead. They will be basing their decisions on up to date information, not balance sheets that could be 9 months old.

The government should look urgently at the removal of these tests and allow lenders to treat each case on its own merits based on the borrower’s ability to survive today’s current events and prosper in a recovering economy.