The global synchronised demand shock caused by coronavirus has been abrupt and severe. The fallout has placed businesses in a unique environment in which the possible outcomes – in respect of severity, duration, post-lockdown economic demand – remain impossible to predict. Company directors, shareholders and business owners must make swift and consequential corporate decisions amid radical uncertainty.
In this new series of short articles, we will outline some of the most frequently asked questions and offer our insights. In this first article, we discuss issues related to the UK government’s loan schemes.
Why has access to government-backed loan schemes been slow?
Speed of access to the Coronavirus Business Interruption Loan Schemes (CBILS), overseen by the British Business Bank (BBB), has been slow for several reasons. Firstly, banks and other lenders have been grappling with the CBILS framework eligibility requirements. CBILS is underpinned by the Enterprise Finance Guarantee (EFG) framework, which was originally designed during the global financial crisis (GFC) and was being reconfigured to support a hard Brexit scenario. Some of the eligibility requirements ported over to CBILS were incompatible with the current economic emergency and this has led to prudence among the 40+ accredited banks and other lenders to ensure loans provided are eligible for the government’s 80% security backstop. Failure to do this would leave banks entirely exposed to the risk. As a result, the process of identifying company financial viability before the Covid-19 outbreak is a work in progress that should, hopefully, speed up over time.
Secondly, accredited lenders have been inundated. According to figures published last week, lenders have received more than 300,000 CBILS enquiries and approved just 5,000 loans worth £450m. By comparison, the Bank of England’s Covid-19 Corporate Financing Facility (CCFF), which directly acquires short-term debt of investment-grade companies, has purchased £5.5bn in commercial paper. The sheer volume of CBILS enquiries has created a bottleneck. However, we expect these teething problems to improve over time.
Thirdly, the government’s initial schemes left a ‘stranded middle’ between the original CBILS scheme (of up to £5m) and below investment grade CCFF thresholds. To remedy this, the new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will reportedly be extended a second time to capture companies requiring loans up to £50m, with the previous £500m annual turnover ceiling scrapped. However, CLBILS is not expected to be available until the end of April 2020,after which companies can apply directly to accredited banks and lenders.
To its credit, the UK government was rapid in its reassurance of emergency funding to businesses in supporting otherwise viable companies throughout coronavirus lockdown. However, both government and the funders will quickly need to improve the execution of these vital schemes. Of course, these are testing times in which the government is concurrently balancing competing priorities between public health (NHS resources) and the broader economic impact, including the needs of the business sector and households. As such, companies will also need to manage immediate cash flow requirements through internal and external liquidity strategies.
Events are fast-moving and companies need to make strategic decisions with imperfect information. BTG Advisory is well placed to support companies, directors, shareholders and accredited lenders. Before the onset of the COVID-19 lockdown and since, BTG Advisory has been conducting financial reviews for both borrowers and lenders, often on a joint basis to quickly determine viability and independently assess and scrutinise future cash flow requirements and options. Please contact us to discuss how we can lighten the load and support your decision-making and viability assessments.