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Alternative Finance blog

Coronavirus Business Interruption Loans

Coronavirus Business Interruption Loans

14 days


Author: Sacha Bright, CEO NextFin

An entrepreneurs view. Are they fit for purpose?

The Coronavirus Business Interruption Scheme (CBILS) if supported by the Enterprise Finance Guarantee (EFG) scheme is not fit for purpose. The funders/banks will not take on the risk of the businesses that will fail because of the virus. Only yesterday this was confirmed when Barclays confirmed that the directors must provide a personal guarantee and also a debenture over the companies’ asset for the full £250, 000 loan (source Lee Birket “Justus”, James Hurley, The Times). Thousands of early-stage/pre-revenue businesses will fail because they do not fit the criteria. Expecting business owners to sign PGs won't work, and many will not have the credit rating or security to support it. The EFG scheme is heralded as a big success however it's been around since 2009 (11 years), and only £3.3b has been lent to 30,000 businesses that's just 2,700 per year across 40 partners. That's less than 70 loans per lender. It also takes weeks sometimes months to get approved.

The CBILS loan is supposed to support tens of thousands of businesses, and hundreds of billions of pounds have been put aside for it.

Whether a business is deemed as a success or not by a lender. They still employ staff, and those staff and that business will fail without government support because the epidemic has turned the economy off for 6 months.

Their usual roots to equity funding have dried up. NextFin who monitors Equity Crowdfunding has seen a huge decrease in investments and the Early-stage funds I know are in turmoil looking after their portfolio.

The loans need to go further, and they need to be clearer. Many of the partners that are on the EFG scheme specialise in lending to the northern territories, some are asset finance or invoice finance specialists and are not equipped to deal with business loans.

Another big question is why isn’t Funding Circle on the CBIL list when the BBB invests money through them to lend out? Why don’t they don’t guarantee their loans? This seems strange. I know there may be a conflict of interest. However, banks get the advantage of using FSCS for savers where savings are protected per account up to £85,000. Surely this would kill two birds with one stone. It would support the new P2P industry and allow savers to get a higher interest rate which would be protected up to 80% by the BBB. There is £60 billion sitting in cash ISAs whose interest rate has just been cut. Why not help savers and entrepreneurs alike by connecting the two and use the money that is already there?

The Government says there will now be Statutory Sick Pay for freelancers and the self-employed and it is considering paying these some 5.5 million citizens a monthly sum of money based on the lower of their average earnings over the last 3 years or circa £2,900, but this is totally impracticable. It will take an age to administer, and by the time the helicopter arrives an unacceptable number of the 5.5million will have gone under. Sunak has admitted he is dithering because clearly, he has been told by his Treasury colleagues that a blanket £2,900 (or whatever the sum may be) will benefit some of the rich in this category. Given the unique circumstances, our country is facing it is irrelevant, inhumane and poor economic logic to worry that, say 10% benefit unnecessarily, while 90% (i.e. 5 million) are propelled towards the breadline and bankruptcy.

The Government has pledged to provide £20 billion of business rates support to help rate-paying businesses which include;

100% business rates holiday for 12 months for all retail, hospitality and leisure businesses

£25,000 grants to retail, hospitality and leisure businesses with a rateable value from £15,001 and up to £50,999

Businesses eligible for Small Business Rate Relief (SBRR) will receive a one-off £10,000 cash payment

£5,000 business rates discount for public houses (increased from £1,000) Any business that currently receives retail relief will automatically receive an amended bill showing the adjustment.

All of the above is all good; however, none of the packages helps the thousands of businesses who do not pay rates. It's also not clear how you obtain the cash grants and when they will be made available. There are now forms on local authority sites to claim it. Yet there is no information on how it will be delivered or how long it takes?

To think positively for a moment, there are Local enterprise partnerships in every county who have millions to invest in equity. Why not team up with Crowdcube, Seedrs or even us at Nextfin to match funds for every early-stage business?

The economy is only on hold for 3 to 6 months. If we nurture these new companies, they can employ thousands, and we will be ahead of the curve when we come out the other side. The public can also support these businesses and be part of the solution.



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