Commentary

By Sanela Tomlinson,

Looking at the effectiveness of UK Government’s financial schemes

Chancellor Rishi Sunak recently published statistics gathered by HMRC on the Coronavirus   Business Interruption Loans, which although at first seemed quite promising, when closely examined paint a dire picture of the state of UK business.

The below graph was published by Rishi Sunak on his LinkedIn page on 30 April, stating that since 14 April more than 1,500 CBILS loans have been approved each day with a total of £4.1bn lent out. This means that if you take an average working day of 9am to 6pm, with an hour’s lunch break, that’s a little more than 166 approvals per hour or 2.7 approvals per minute, which is incredible but still not enough or fast enough to protect UK businesses. In addition, approved and paid out are two very different things, and no one understands this more than a business struggling to pay its staff or operational costs on time.

Furthermore, £4.1bn is only a little more than 1% of the promised £330bn, which when put in this context does not seem like much of a success. However, this raises the question, with so few claims paid out, what is the number of rejected cases? What is the approval rate?

Some news sources have stated that only 2 out of 10 CBILS (21%) applications are approved, which highlights how low the actual rate of relief is. Although it is worth noting that it is much higher than the first-weeks’ CBILS, which saw approval rate of 0.8% and much stricter requirements for loans, such as personal guarantees on every loan no matter how small. Personal guarantees were later amended to only be required if the loan is above £250k.

When claiming for CBILS, many businesses have found themselves falling between the cracks of the system, either not having traded for long enough, or appearing too risky for banks to approve the loan.

No one doubts that CBILS was a great initiative on paper but it is not having the desired impact. Banks are not lending to enough people and not quickly enough, causing an outcry. Internally, banks are also under strict regulation put in place to avoid another incident like the financial crisis of 2007-08, yet the only reason many banks are still operational, such as Royal Bank of Scotland and Lloyds, is largely due to taxpayers bailout. So what happens now?

To avoid going in circles between what the Government says and what banks do, while businesses continue falling ‘between the cracks’ of the system, something had to be done. People began discussing that the scheme would work if the Government provided 100% guarantees to the lenders and targeted a specific type of small business. Introducing, Bounce Back Loans.

The new Bounce Back Loans (BBLs) introduced on 4 May are a way for the Government to counteract the slow and reluctant response from the banks to lend to SMEs under the CBILS. The loans will be capped at 25% of the turnover of the business, up to a maximum of £50,000 and will be 100% backed by the Government. The loan scheme does not require the business to provide cash flow analysis, viability tests or eligibility criteria, only basic fraud checks. BBL was clearly targeting the smallest of business and entrepreneurs.

Bounce Back Loans

On the first day of launching, Rishi Sunak has announced that almost 70k Bounce Back Loans worth £2.1bn were approved, and millions of pounds have already reached the business’ bank accounts. That is almost as much as CBILS handed out in its first five weeks. 

Despite this, many quickly began pointing out that only a small number of accredited banks were providing BBL and that you need to be an existing client, which was significantly limiting to many businesses. However, at the present moment, those banks that are not accredited to provide BBL are working on getting approved, such as Metro Bank and Starling. To see accredited lenders view the table below. With all this in mind, it is still a positive sign that some action has been taken to fill in the cracks left by other schemes.

Click on the bank names below to learn more about each banks CBILS and BBL policy.

BankAccepting non-existing customers?
BarclaysNo
HSBCYes,
but may be required to open
an account with them or additional checks
Lloyds BankNo
SantanderNo
TSBNo
Bank of ScotlandNo
NatWestNo
Ultster BankNo
Clydesdale BankNo
Danske BankNo
Yorkshire BankNo
Royal Bank of ScotlandNo

Many businesses that have been waiting for their CBILS loan to come through are now abandoning this process going instead for the BBL in hope that they can inject some much-needed cash as soon as possible into the business. If you are already claiming under the CBILS scheme then you are unable to apply for BBL. However, if you took a CBILS loan or overdraft worth £50,000 or less it can be transferred to a BBL up until 4 November 2020.

Final Thoughts

At the end of the day, the Coronavirus situation is unprecedented and creating a solution that works for every type of business scenario is practically impossible, but at least the Government is listening and responding to the outcries of the people. The proof of this is in the new loan scheme introduced, adjustments made to CBILS, and the general feeling that there is something that can be done. If you need help accessing the available financial schemes or would like to discuss your business situation, we are here to help. Get in touch with us.


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