After all of the bad press received by the Coronavirus Business Interruption Loan Scheme (familiarly known as CBILS) as a result of the low numbers of loans advanced by the banks compared to applications, the announcement of a new improved version by Mr Sunak yesterday was a welcome surprise, and will hopefully be good news for many of the thousands of businesses who have been hitting brick walls with their CBILS applications.
The new scheme, given the somewhat more populist title of “Bounce Back Loans” (BBLS?) have most of the compelling features of their big brother, plus added features that are promised to make them much more easy to obtain.
To recap, the CBILS are loans of up to £5 million backed by an 80% Government guarantee, thus limiting the lender’s exposure to just 20% of the amount advanced in the event of the failure of the business. The Government is also covering interest and fees for the first 12 months of the loan, and no repayments are required for that period. The main problem with the loans has been that banks have been assessing lending propositions under their normal criteria, including the existence of a viable business prior to the effects of the pandemic, and a reasonable schedule of how the loan will be repaid once the 12 month repayment/interest holiday expires. Banks have been applying minimum amounts (typically £25k) and limits in relation to turnover which have made the prospects of many small businesses obtaining a loan fairly minimal.
There has been limited information produced about the BBL’s, and we are promised full details including an online application form by next Monday, May 4th. However the highlight revealed by Mr Sunak is that it will be covered by a 100% guarantee from the Government, thus making it more palatable for the lenders who will therefore be expected to relax their lending criteria to cover businesses which they would previously have been nervous about, even at an exposure of 20%. The loans are aimed at small businesses as they will be for between £2k and £50k, and they will possess all of the other benefits included in the CBILS (12 month interest/repayment holiday and no personal guarantees for owner/directors). They will however still include the requirement that the business was not already struggling in December 2019.
We will not know what information will be required from applicants until the further guidance and application form is issued, but one can only presume it will be no more than that which most of the potential applicants will already have provided in the CBILS applications, so hopefully the Chancellor’s promise that the funds will be made available “within days” will be feasible. The initial guidance says that businesses already in the process of applying for a loan under the CBILS will not be able to apply for a BBL. That would seem to be unfair on those who have unsuccessfully started the CBILS process, and it is to be hoped that up to £50k of the CBILS loan applied for will be eligible for transfer to the BBLS. This is particularly so given that the guidance says that CBILS loans that have already been made up to £50k can be transferred to the BBLS (although I cannot at the moment see what the borrower will gain from this, the only benefit being for the lender which will obtain 100% taxpayer backing instead of 80%).
At the end of the day, however much the Government tries to ease the way for the banks to advance funds to struggling businesses by offering full taxpayer guarantees, it is ultimately down to those lenders to respond and produce the loans in the quick and easy fashion promised by Mr Sunak. His rhetoric has certainly raised the ante for them to come up with the goods, and the fact that they have been heavily involved in formulating the proposals will leave them with little excuse if they do not come up with a significantly improved success rate for applicants. We will start to find out next week!
Author: Peter Hedgethorne, Director
(28 April 2020)