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Up To A Million Small Businesses Face Going Under As Many Continue Struggling To Access CBILS

Posted 4 years ago

Up To A Million Small Businesses Face Going Under As Many Continue Struggling To Access CBILS
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Author: Sacha Bright & Oliver Murphy

According to a Corporate Finance Network Report, 800,000 to 1 million small UK businesses cannot access CBILS. The Network, which is working with 13,000 businesses predicts that 18% of all struggling small companies will not be able to survive the next month due to the UK lockdown.

Despite Chancellor Rishi Sunak overhauling the Coronavirus Business Interruption Loan Scheme, the latest figures, released by UK finance show that so far 6,016 of the 28,461 loan applications - worth £1.1bn have been successful. 300,000 businesses have made informal enquiries, but have yet to receive funding.

According to the Bank of England, the small business loan market is worth £155bn, meaning that in a normal market, banks are lending nearly £3bn per week. And yet CBILS has deployed only £1.1bn in three weeks.

A similar Swiss government support scheme distributed 28 times more cash in its first week than the UK has achieved in three weeks. Switzerland has made 10bn francs (£8.6bn) available to small businesses covering 10 percent of turnover up to a ceiling of 500,000 francs (£400,000), repayable as an interest-free loan over five years.

CBILS, designed to encourage banks to lend by offering them a government guarantee for 80% of the amount, has been seen as crucial by politicians to keep many of Britain’s 5.8 million small businesses alive. But could not be further from reality.

The CBILS was based on the Enterprise Finance Guarantee Scheme. According to British Business Bank the Scheme facilitates lending to small businesses that are viable but unable to obtain finance from their lender due to having insufficient security to meet the lender’s normal security requirements.

Despite the Chancellor’s promise to do “whatever it takes'' to save the economy, the British Chambers of Commerce have announced that only 2 percent of businesses they surveyed had loan applications approved.

What has been suggested to improve the scheme?

In light of this news, Rishi Sunak has said that he would look to other countries to see if the government could “learn and improve” on its business loan scheme. Speaking at the Downing Street daily coronavirus update, he hinted that the government might introduce 100% loan guarantees. This would undoubtedly speed up the process and remove the risk for lenders.

Responding to the figures, CEO of NextFin, Sacha Bright said: “The fact that CBILS is based on the EFG scheme, shows it is not fit for purpose in the current climate. It will only help a minority of businesses, not the majority, which it was intended for.”

The EFG loan scheme was developed from a different crisis - namely the 2008 credit crunch where banks were reluctant to lend without security.”

He added: “There is no doubt that the EFG Scheme has been positive. Since its launch in 2009, the British Business Bank’s Enterprise Finance Guarantee (EFG) has supported the provision of over £3.3bn of finance to more than 35,000 small businesses in the UK.”

“But, it's only suitable for a limited number of businesses. Over the last ten years with a 75% guarantee, only £300m has been lent per year under the scheme. So the question must be asked: how, in one of the biggest economic crises this country has faced, can the government deploy £300bn worth of business interruption loans in three weeks based on this scheme?”

“CBILS needs to be distributed through many different alternative lenders to speed up the process and the criteria needs to change massively to cover a variety of situations and business stages, not just businesses that don’t have security.”

“The government will find that the ability to deploy £300bn in weeks based on its current criteria and availability to alternative lenders, impossible.”



Disclaimer

To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional legal advice on any topic discussed.

Tagged: News CBILS



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