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What Do The Changes To CBILS Actually Mean For Businesses?

Posted 7 months ago

What Do The Changes To CBILS Actually Mean For Businesses?
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Author: Sacha Bright & Oliver Murphy

Last week, after sustained criticism, the Chancellor overhauled the Coronavirus Business Interruption Loan Scheme to make it easier for businesses struggling to keep afloat to access funds.

The Scheme was designed to help small and medium-sized enterprises survive during the government-imposed lockdown.

However, a key criticism of the scheme has been the requirement for banks to assess whether small businesses are first eligible for other lending options. According to reports, the Treasury has been in talks with lenders such as Barclays and RBS with the intention of removing these criteria.

Under the new programme, any business with a turnover of up to £45 million will be able to access the scheme, which will be interest-free for the first year. Banks could waive current demands for personal guarantees on loans of up to £250,000.

Now, it is expected that any personal guarantees taken will only apply to loans above £250,000 and will cover the 20% of the loan that the government is not underwriting.

In figures released since the original CBILS scheme was launched last week, the government has confirmed that more than £90m of loans to nearly 1,000 small and medium-sized firms have been approved. 

The scheme has seen more than 130,000 enquiries from businesses, with a current total of 983 applications for finance approved, according to data from UK Finance.

The British Business Bank has confirmed that the number of providers of the scheme will continue to grow, including fintech alternative finance providers. These will be able to approve more loans faster, getting the vital cash needed for these companies to survive.

JustUs and Assetz Capital are among a number of alternative lenders to have applied to the Coronavirus Business Interruption Loans Scheme (CBILS), but are yet to be approved.

NextFin’s view: Will this help small businesses?

The scheme is not perfect. Indeed, it has been reported that nearly two-thirds of business owners feel that CBILS will not reach them in time, resulting in them running out of cash. 

The pressure is on the British Business Bank to approve these alternative lenders fast, as this will undoubtedly speed up the approval process, ensuring businesses receive vital cash as soon as possible to remain operational.

In a statement, the government said the move is intended to “maximise the support available” to businesses “should they need finance to keep operating during this difficult time”.

Under CBILS’ expansion, these businesses can now benefit from the scheme, so long as they self-certify the impact coronavirus has had on them and they have a viable borrowing proposal.

However, while many small and early-stage businesses might be able to prove that coronavirus has had a significant impact on operations, the ability to offer a credible borrowing proposal may pose a challenge. Indeed, as NextFin has reported, it may be difficult for early-stage companies with low profits to qualify for loans which have to be paid back.

What’s more, the new scheme references ‘viability’. Many lack the trading history required for banks to consider them as ‘viable’ entities if their operations were not being disrupted by Covid-19. Indeed, most start-ups are loss-making and could be at a disadvantage when it comes to securing a government-backed loan.

Despite new reforms having been welcomed by many businesses, there is no escaping the fact that CBILS are still loans. Companies wishing to take them out will be 100% liable for the debt and the government has not capped the interest rate banks can charge even though banks are able to borrow at close to 0%.

According to research from the alternative lender MarketFinance, only 52% of businesses are considering utilising the scheme. With cashflow tightening, business owners might be wary of taking on additional loans that they may not be able to pay back.

There is no doubt, overall, that businesses could greatly benefit from the Chancellor’s new proposals. As Dame Carolyn Fairbairn, Director-General of the CBI stated: “The Chancellor’s measures are a big step forward. They will help deliver cash faster to firms battling for survival in the headwinds of the pandemic.”

But while this is the case, there is far more work to be done to ensure that all businesses, including those in the early stages, can benefit from much-needed government support.

Disclaimer:

To the best of our knowledge, the information we have provided is correct at the time of publishing. SEIS and EIS tax benefits are dependent on your financial circumstances. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed. 

Risk Warning:

Investing in equity crowdfunding and early-stage businesses involves high risks, which may include long-term investment horizons, illiquidity, lack of income and potential dilution. Any investor needs to be in the position to afford a total loss of capital invested.

NextFin is targeted at members who have the knowledge and experience to understand these risks and make their own investment decisions. You will NOT invest through NextFin but through the relevant crowdfunding website which also has signed off the content as a Financial Promotion on its own website. NextFin is not the originator of the financial promotions that appear on its site. However, we do to the best of our ability carry out limited compliance checks on the originator and the company seeking funding to ensure they are conforming to FCA regulations and anti-money laundering equity/requirements as appropriate. Business Agent Limited, trading as NextFin, takes no responsibility for this information or for any recommendations or opinions made by the companies or its users. Click here for our full risk warning.



Tagged: News Loans Start-ups Assetz Capital MarketFinance



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