Small businesses are going through a tough time, as COVID-19 continues to disrupt normal business dealings. One of the earliest measures launched at the start of the crisis was the Coronavirus Business Interruption Loan Scheme (CBILS), which aimed to provide help to businesses with an injection of available money. However, the CBILS loan scheme attracted plenty of criticism and Chancellor Rishi Sunak published amendments just last week to encourage more cashflow to small business.
What criticism did the CBILS loan scheme receive?
The announcement of the coronavirus loan scheme for small business was a welcomed move and its importance was highlighted by the figures the Government published recently. According to the Government, in just a few days, around 1,000 small businesses had been able to receive over £90 million under the scheme. However, there have also been over 130,000 enquiries about it across the UK, which means there are still businesses out in the dark and unwilling, or unable, to use the scheme.
Scrutiny of the scheme revealed major issues that caused many in the industry to ask the Government to clarify and amend the scheme. The main criticism of the loan scheme was aimed at how the lenders offering the CBILS loans were able to attach damaging loan conditions without restrictions. Banks have been reported to hike interest rates on those loans to up to 30% and demanded personal guarantees from small businesses prior to lending.
What are the announced amendments?
The Chancellor has been forced to respond to the criticism and on 3 April, a set of amendments was published to help respond to the issues. The changes to the CBILS loan scheme look like this:
- The scheme’s loans must match the commercial rate of interest to reflect the current low Bank of England interest rates.
- The CBILS loan scheme won’t be considered as the ‘last resort’ but small businesses can now apply for it before other commercial sources of finance.
- Lenders can’t demand personal guarantees for loans under £250,000.
- The Government is amending the operation of the scheme to speed up approval times for the loans.
Furthermore, the Chancellor announced that the scheme is going to broaden in its scope. Previously, the CBILS loan scheme was targeted to small and medium businesses but the amendments would mean large firms could also apply for loans. Under the new rules, large firms are offered up to £5 million, with the Government responsible for the loan’s interests and fees for the first 12 months. These loans are for firms that have a turnover of £45m-£500m.
How have businesses responded to the amendments?
The reaction to the amendments has been cautious. While the amendments could help provide clarity to the rules, as well as improve the loan conditions for small businesses, there are still fears that the scheme won’t help businesses quickly enough. Many digital banks have also pointed out their frustration of not being included in the scheme’s official lender list.
Speaking to Accountingweb.co.uk, Capitalise.com founder Paul Surtees said, “The reality is that businesses need the funds in weeks, not months, so these changes despite a move in the right direction are unlikely to unleash the tsunami of funding support so desperately needed”.
The situation is unprecedented and it wouldn’t be a surprise to see further tweaks to the scheme. Many businesses might also require additional help, especially if the pandemic continues to disrupt normal trading for a longer period. Additional measures by the Government might be necessary to ensure this disruption is as small as possible.
What you should know about the scheme
We published a guide to the CBILS loan scheme at the time of launch, which you should read if you are looking for extra help and you want to know if the scheme could help your small business. The guide will also provide information about the other financial tools available for your business.
The above amendments don’t change the fundamentals of the coronavirus loan scheme but they can ensure your business gets a better deal with lenders. If you have previously talked with lenders and you weren’t happy with the conditions they offered, it might be worth checking up with them again – for example, the proposed interest fees must follow the new Government guidelines.
In short, the scheme allows businesses to:
- Borrow up to £5 million from pre-approved lenders for businesses with turnover below £45m and up to £25 million for large businesses with £45m-£500m in turnover.
- Get Government backing for up to 80% of losses.
- Have the Government cover the interest payments and fees for the first 12 months.
- Have personal guarantees limited to just 20% for an outstanding amount for loans over £250,000.
Please keep in mind that the CBILS loan scheme does not cover the self-employed. The Government has launched a scheme for self-employed and you can read more about it here. While the CBILS loan scheme has been open for applications since the end of March, the self-employed scheme won’t be paying out until June at the earliest.
Get help with your small business finances
These are tough times for small businesses and the self-employed. It is vital to make sure your business is taking advantage of all the tools available to you. However, navigating the different schemes can be difficult and that is why we are here to help.
At Devonshire Green, we understand your struggle. We have experience in supporting small businesses and we are committed to working with businesses in these challenging conditions. Contact us today and let’s work together to ensure your business comes out on the other side of these troubling times!