The UK government has acquiesced to pressure from the economy’s smallest businesses who complained they were falling through the cracks of measures to support SMEs. Banks have reportedly been slow and reluctant to lend under the Coronavirus Business Interruption Loan Scheme (CBILS) as, under the existing scheme, they remain liable for 20% of the credit risk and the challenges of demonstrating viability in an uncertain financial climate. Many so-called ‘micro SMEs’ have complained that the CBILS scheme is cumbersome and reported long application processes, while some were told by lenders that they do not meet eligibility requirements.
“I know that some small businesses are still struggling to access credit,” Sunak said in a statement to Parliament on Monday. “They are in many ways the most exposed businesses to the impact of the coronavirus and find it hard to access credit in the first place. They will need extra support to get through this crisis.”
Under the new fast-track ‘bounce back loans’ scheme, which opens next Monday (4 May), small businesses will be able to borrow up to 25% of turnover, to a maximum of £50,000, with access to cash within days. The government will provide a 100% guarantee for the loan and pay fees and interest for the first 12 months. “There will be no forward-looking tests of business viability,” Mr Sunak added, “no complex eligibility criteria; just a simple, quick, standard form for businesses to fill in. For most firms, loans should arrive within 24 hours of approval.”
Mike Cherry, National Chairman of the Federation of Small Businesses, described the new scheme as a “decisive intervention” which “should enable thousands of small businesses to access the working capital they need quickly”. Former Chancellor George Osborne tweeted his support: “Very welcome improvement to the government’s small loan scheme to unblock it – 100% government guarantees for the smaller loans and a much simpler application process. Just like Switzerland.”
Switzerland’s management of emergency loans for its SME market has become the benchmark across Europe. The Swiss government successfully distributed 75% of an initial SFr20 billion in emergency loans to small businesses in its first week of the scheme’s operation. The key to Switzerland’s success was exceptionally tight co-ordination between the federal government and Switzerland’s banks, which the UK and others across Europe are urgently trying to emulate.
However, slow-moving application processes still endure for many small and medium-sized companies which require credit of more than £50,000, and the Chancellor has warned that 100% government guarantees would not be extended to all loan schemes. “I remain unconvinced by the case for doing that universally,” Mr Sunak continued. “We should not ask the ordinary taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses who may, in some cases, have very little prospect of paying those loans back – and not necessarily because of the impact of coronavirus.”
BTG Advisory is well placed to support SME 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.