THINKING

By Tom,

Small businesses are fighting a losing battle with the banks

With each day the Coronavirus pandemic rages on, another SME in the UK is nearing closure, with a fifth being unable to survive the next four weeks despite the government support that has been offered, according to the recent research done by the BBC. This means around 800,000 to a million businesses nationwide could soon close.

It was two weeks ago when Chancellor Rishi Sunak stated that the government will support businesses affected by the pandemic through the Coronavirus Business Interruption Loans Scheme (CBILS), which will offer up to £5m in financing to help avoid businesses from shutting their doors. 

However, at the time of writing, businesses in desperate need of an olive branch are finding it almost impossible to get through to their banks, and when they do, are often turned down and told they are not eligible. As more and more CBILS loan applications are denied, people are reminded that in 2008, it was the taxpayers who had to step-up and bail out the banks to save them from going bust. 

Yet, now the scenarios have reversed, more and more people are finding themselves without help that they require. Business Secretary Alok Sharma warned the banks yesterday that it is “completely unacceptable” how some have been unfairly treating businesses in need, even promoting commercial “business as usual” loans, when in reality, there is nothing “usual” about the situation we are in today.

The key difference between CBILS and “business as usual” loans, which are normal commercial loans, is that the latter does not come with an interest-free period or a repayment holiday at the beginning of the term. The interest rates are also often higher. The banks prefer commercial loans over CBILS loans because they make more profit on them, and they are allowed to ask for more security over the lending facility, often putting business owners’ assets at risk. This is unfair and biased and uses the Coronavirus as a further route to profit for the banks.

Coronavirus, Business and Banks
Empty streets and empty stores, leaving businesses desperate for a loan.

“To say HSBC are beyond useless is unkind to anything useless”

Jacob Mason runs a branding agency that works predominantly with hotels and corporate businesses. With more than half of the business revenue coming from hotels, he can trace a clear connection between Coronavirus and its impact on his business. As hotels struggle to keep their staff and businesses afloat, they are also delaying Mason’s invoice payments.

With the hospitality businesses being one of the hardest hit during the Coronavirus, Mason understands, “that I cannot be too harsh and pressure them with invoice payments”. Yet, with his business on the line as companies are repurposing marketing and branding money to other business areas, he had to apply for CBILS with his bank, HSBC.

However, after spending days trying to reach HSBC, with calls being dropped after waiting nearly two hours, and continual bureaucratic miscommunication, Mason concludes that “to say HSBC are beyond useless is unkind to anything useless”. The last straw was when the person on the phone told Mason that he needed to go into the branch, to which he replied that “there is a global pandemic killing people” and hung up the phone, and with it his chance of getting a loan with HSBC. Even more surprising is the fact that all HSBC branches are closed for appointments and new product applications, further highlighting the level of misdirection during the application process. 

In an interesting contrast to Jacob’s experience, our partner Ben Crampin has been “very impressed so far with Barclays” and how our banking relationship manager has been handling our CBILS application. People argue that there appears to be an unfair advantage depending on your banking provider, the location of your business and what type of assets your business has, which all help you secure a loan.

Turned down and discouraged, those businesses that try to get funding through an independent lender, rather than a big bank, find that due to their size they often have caps on how much they can lend, or focus on a particular region in the UK. Interestingly, most of that region is North of England. Therefore, if you happen to be a business in the South East, your options are slim, notably only one, solitary lender.

Unfortunately, if businesses continue to struggle to get financing through the CBILS scheme, it is estimated that many will not last past this month. Although the scheme has shown evolution, iconically at the beginning the banks were asking for personal guarantees, many banks have removed this requirement completely or partially.

Similarly, under the original CBILS agreement, companies that have received state aid in the past three years were not able to qualify, a requirement that was also removed. Truly, why should a business be punished for taking state aid years ago? How could they have predicted that they should not apply for this type of aid because later down the line a global pandemic will hit and decide to wipe out most businesses and take down the stock market with it?

With this in mind, although the CBILS, structured correctly, would have been extremely helpful to SMEs across the country, if the barriers to get funding continue to be like they are today, the fact of the matter is that 800,000 to a million businesses will end up closing and people will lose their jobs permanently.

Furthermore, there are talks about the quarantine duration in the UK being extended, with the possibility of it lasting to September, businesses will find themselves not only struggling to survive but also to pay off the loans. Therefore, it appears that the loan repayment schedule seems too optimistic. 

To help businesses struggling to repay the loans, banks should be open to revising agreements and making concessions, such as longer interest-free periods. Instead of using this time to capitalise on struggling businesses, banks could change their approach and offer more support to those in need. Banks can use this time to become a companion, maybe even a confidant, rather than a prison warden and, ultimately, executioner.

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