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In the last few days, it has been reported that more than one million people have been overlooked in government schemes that were designed to help them during the coronavirus pandemic.
But while the Treasury’s attempts to plug the gaps in the form of the Future Fund and Bounce Back Loan Scheme have been welcomed by many, there is still so much further to go before the government can fulfill its promise to “do whatever it takes to protect people from the economic impact of coronavirus.”
In stark contract, France and Switzerland have been much faster at distributing funding to ailing businesses. The French government unveiled a €4bn package to support its local start-ups in March, while previously Germany pledged €2bn to help its start-ups weather the crisis. In the UK, however, there were a number of technical issues that delayed the deployment of much needed support funds.
One such example is the Coronavirus Business Interruption Loan Scheme (CBILS). Fraught with problems, starting with the controversial provision of personal guarantees and the difficulty of many small businesses in proving they were a viable entity, it took over a month to distribute just 18,595 loans worth £3.1bn.
However, things improved with the introduction of the Future Fund and Bounce Back Loan Scheme which saw £2bn distributed to over 69,000 small businesses. Indeed, the situation is certainly looking brighter than it did three months ago - £15bn has now been handed to more than 304,000 businesses.
But why has the UK, widely applauded as the start-up capital of Europe, fallen so behind its European counterparts in providing support for these businesses during the coronavirus crisis? And more importantly, what should be done to address this?
Hailed as an unprecedented move in supporting businesses through the pandemic, the Coronavirus Business Interruption Loan relies heavily on banks lending to businesses. The loan comes with a guarantee that the government will cover 80% of losses if a customer defaults. However, NextFin has argued that offering a 100% guarantee would help smaller businesses who are unable to secure a CBILS loan at an original 80% guarantee because banks do not want to underwrite the risk of the 20% during the downturn of the economy.
After much criticism surrounding the processing of loans, the Treasury did amend the scheme and introduced CLBILS for larger businesses and the Bounce Back Loan Scheme for smaller enterprises which offers a 100% guarantee. Yet, even now, a number of applicants are reporting issues with applying for the latter, with some business owners reportedly waiting for over a month for funds to enter their account, as opposed to the expected 48 hours.
The picture in Europe, however, couldn’t be further removed. France launched a £363bn scheme for business loans which were 90%-backed by the government. Crucially, these loans included businesses regardless of their size. Recently, the French government announced a 100% guarantee for companies struggling to secure funding.
In Germany the state originally pledged to guarantee up to 90% of private loans but has since agreed to increase that to 100%.
In Switzerland, banks are offering 100% government-backed loans worth up to 500,000 Swiss francs (£425,205), and an 85% guarantee for loans of up to 20m Swiss francs.
NextFin has rigorously campaigned for and suggested a number of ways in which the UK can improve its support for businesses affected by Covid-19. As the debacle around CBILS has shown, a primary way of doing this is for the government to accredit even more P2P lenders to provide the loan.
The government needs to recognise that a good way to get money to small businesses quickly is to extend the loan to all regulated P2P lending sites. Banks are simply not structured to process hundreds of thousands of SME loan applications at one time.
As a consequence of this, far too many businesses could go to the wall unless P2P lending sites are brought in to assist with processing loans. In enabling more P2P lenders to provide under the Scheme, the government could provide P2P lenders with a guarantee of 80% on each loan to give investors further confidence to invest through P2P platforms, thus giving them capital to lend to early-stage businesses - many of whom rely on these loans to survive.
As well as this, NextFin believes that investing in enterprise will also ensure that the UK can better protect its small businesses. One such way is to increase the tax relief available through the Seed and Enterprise Investment Schemes to stimulate private investment into businesses that rely on it. Since its inception 25 years ago, the SEIS and EIS have been responsible for almost £20 billion of private investors’ capital to create and drive the growth of over 27,000 businesses.
If both of these policy suggestions were implemented, the UK would find itself overtaking its European counterparts in its coronavirus support for businesses.
Authors: Oliver Murphy & Sacha Bright
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.
Tagged: Coronavirus Business EIS SEIS Investment Entrepreneur SME
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