Many small and medium sized businesses will have been reassured to hear about the steps that the Government is taking to ensure firms can survive the current coronavirus crisis, and will have welcomed the news of the introduction of the Coronavirus Business Interruption Loan scheme (known as CIBLS).
The following piece is by KIS Finance.
Companies struggle to access financial support
But as companies try to access this support many are finding that the banks are not making it easy to get the financial support that they need. Rather than making the process as quick as possible for companies in distress, the banks are taking this opportunity to cash-in on the crisis by insisting companies apply for a standard business loan first. Only if they then fail to meet the normal criteria will they be able to apply for a loan under the CBILS.
Banks demanding additional security
Even then there is a lot of uncertainty on exactly what forms of security the banks will be asking for from businesses, if they are considered for a loan under the Coronavirus Business Interruption Loan scheme. Some lenders have been asking for personal guarantees which would place the personal property of business owners at risk if their business were to fold due to the crisis. Rather than helping companies in line with the Government’s intentions, the banks seem to be creating barriers which will prevent businesses from getting the financial support that they so desperately need and the Government openly promised.
How does the Business Interruption Loan Scheme work?
Under the CBILS companies can apply for a loan of between £25,001 and £5m for up to 6 years to help them survive the current crisis. Those needing financial help over a shorter period can access overdrafts and invoice finance for up to 3 years through the scheme. Loans arranged under the scheme will be interest free for the first 12 months and there’s no need to make any repayments for the first year either.
Which business are eligible?
With the vast majority of businesses being impacted by loss of trade, falling sales and cash flow issues, this certainly sounds like very welcome news. So long as their annual turnover is less than £45m and they would be a viable business if it weren’t for the impact of the virus, companies will be eligible and will be able to borrow up to the value of 25% of their 2019 turnover or twice their annual wages bill.
How do companies apply?
Loans can be accessed via 40 lenders who are currently part of the scheme and companies are being directed to apply via their normal business bank in the first instance.
However, this is where the problem starts! On approaching most of the main banks, companies are being advised that they must apply for a normal business loan in the first instance. Only if they fail to meet the normal lending criteria will they then be considered for a loan under CBILS.
Are the banks cashing in on the crisis?
With the Government providing a guarantee on 80% of the money lent through the scheme, the risk to lenders is greatly reduced but many still seem keen to cash in on the exceptional circumstances that companies find themselves in by insisting on businesses applying for a normal business loan first. As interest will be charged at commercial rates on these loans from day one and companies won’t benefit from the 12 month payment holiday, as they would with a loan under the Government’s scheme, many firms may find that they can’t get the support that they so desperately need at this time.
Given the unprecedented nature of the crisis and the lasting impact that this is likely to have on the UK’s economy, shouldn’t the banks be offering all affected viable companies access to the same level of support? Offering an interest free period and payment holiday in line with those provided under the CBILS, would create a level playing field and provide the support that businesses will desperately need to survive the current crisis. Clarity is therefore urgently needed to ensure that all banks are treating businesses fairly and in accordance with the intentions set out by the Government, rather than focusing on generating their own profits.
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