The UK has reached its three week mark into the Coronavirus Business Interruption Loan Scheme (CBILS). But what we are seeing is not hugely optimistic news for the country.
As of Tuesday 14th April 2020, accredited funders have lent £1.1bn, resulting in 6,020 approved cases. Figures have doubled in a week, but as The Guardian reports, it has moved ‘from a dribble to a trickle’, which does not bode well for the thousands of UK businesses looking for financial support during these times.
Inquiries have reached 300,000 but only 28,461 actual formal applications have been made. As per The Guardian’s article, The Federation for Small Businesses asks why this is happening?
Concerns around the CBILS application process
Many SMEs believe the application is long-winded. Applicants have a fear of rejection, coupled with the belief that their application will go to the bottom of the pile if any error is made causing the application to be incomplete. Therefore, there is a lack of trust in the scheme stopping SMEs from applying for the loans.
Many businesses with a turnover of under £5m do not have a designated bank manager, therefore have no one to direct questions to and must rely on under-resourced call centres. It appears there are many hoops to jump through to seek approval for CBILS, including evidence to prove they have explored all other cash saving options e.g. VAT deferrals, grants, furlough scheme and lowering director remuneration. Cash flow must be evidenced and approved, so those applying must produce well thought out forecasts.
CBILS applications are also being considered on the strength of the business’s cash flow. This is a change of tact for banks, as in the last 10 years they have focused more on the strength of assets as security.
The banks must be sure that business owners have satisfactorily evidenced their business was viable before, and is highly likely to be, after the crisis. You might think the banks would be quite relaxed in their decision making, with an 80% guarantee in place from government, but this will be part of the checking process when they try to call on the government’s guarantee should a default situation occur. If they have not been thorough in their credit assessment process, then it is likely they could have the guarantee rejected and suffer 100% of the loss.
A strain on UK banks
Banks are struggling to handle the scale of the project. Of the 6,020 approved cases, NatWest/RBS has approved 50% of these. We know some of their managers and they are working tirelessly to get through the backlog.
Ed Miliband, Shadow Secretary of State for Business and Industry, has led the call for the government to back 100% of loans, which was also discussed at a Treasury Select Committee meeting on Wednesday 15th April 2020. Yet that risks unviable businesses receiving funding, increasing the state’s losses.
Germany has adopted this 100% backed model and has to-date lent €7bn. Quite like the Swiss scheme, applicants must answer six questions online and if answers are satisfactory, they advance you 10% of your turnover within three hours (a five year jail sentence is threatened to those that embellish or answer incorrectly).
Further business loan, asset refinance specialists and invoice finance providers have recently applied for CBILS and they should be accredited within the next week or so. This will hopefully fast track more CBILS monies into the economy and save many SMEs. These funders are from the alternative funding sector and mostly are only accessible through brokers.
PMD Business Finance is a qualified CBILS introducer. Get in touch if you are looking for advice for your business.
Peter Dobson, Managing Director