‘Lenders must stick to the spirit of the Coronavirus Business Interruption Loan Schemes, not the letter’

The Coronavirus Business Interruption Loan Scheme (CBILS) is intended to provide financial support to SMEs that are losing revenue and seeing their cashflow disrupted as a result of the COVID-19 outbreak. But the small business champion ParcelHero says that this support is coming too slowly and infrequently and with too many strings attached.

The SME champion ParcelHero agrees with Business Secretary Alok Sharma’s latest UK Briefing message that: ‘It would be completely unacceptable if any banks were unfairly refusing funds to good businesses in financial difficulty.’ ParcelHero is warning up to a fifth of SME businesses are likely to close if the lockdown lasts a month or more without this help. It says the Government’s £330bn Coronavirus Business Interruption Loan Scheme (CBILS) was widely welcomed but, for it to be of any use, lenders must abide by the spirit of the new scheme and not smother it in red tape and caveats.

The Government says CBILS: ‘provides financial support to smaller businesses (SMEs) across the UK that are losing revenue, and seeing their cashflow disrupted, as a result of the COVID-19 outbreak’. To motivate the big banks, CBILS provides lenders with an 80% Government-backed partial guarantee, removing a lot of their risk. But ParcelHero’s Head of Consumer Research, David Jinks MILT, says the small print is allowing lenders to be over-cautious about agreeing these loans or making the terms too unattractive for many SMEs. This could spell the difference between life and death for many UK businesses.

David says, ‘This scheme is supposed to help any viable business with a turnover of up to £45m to access government-backed finance of up to £5 million, with interest payments and fees covered by the Government for an initial twelve months. But many SMEs signing-up for the offer for any loan of over £250k will need to be secured by company assets. If they don’t pay the loan back, the lender can keep the businesses’ factories, equipment, company cars, etc. In addition, the borrower always remains 100% liable for the debt, which is hardly attractive terms in the current conditions. Yet, some businesses are still struggling to gain finance even with the Government covering banks’ backs to the tune of 80% and SMEs using their businesses’ properties as security.

‘Many firms are now saying that banks have refused them emergency loans. Why is that? The terms of the new CBILS scheme are that an SME should be given a loan if it has a borrowing proposal that, were it not for the current pandemic, would be considered viable by the lender and would enable the business to trade out of any short-to-medium term difficulty. Instead, it seems as though lenders are applying virtually the same criteria as applied to the old Enterprise Finance Guarantee scheme (EFG): that the loans must be considered viable under the lender’s commercial terms before they will release financial support. That’s even with the added bonus of the loans being guaranteed by the Government and ultimately the public. That looks a little like having your cake and eating it.

‘The problem is the phrasing of the scheme. ‘At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS.’ There seems to be an abundance of discretion and securities are being demanded too dogmatically by some lenders.

‘To ensure the future of all our temporarily embattled SMEs, lenders should care less about interpreting the wording as they see fit and instead pay attention to the latest words of the All-Party Parliamentary Group on Banking, which says: ‘There is confusion about the CBILS. Treasury must issue clear guidance on parameters and not allow security at ‘discretion of the lender’ to muddy the waters. Unprecedented times require emergency funding. Keep it simple, and no PGs’ (personal guarantees).’