Member Article

Navigating the Coronavirus Business Interruption Loan Scheme

The evidence suggests that the Coronavirus Business Interruption Loan Scheme (CBILS) is not solving the problem for which it was rightly identified as a solution. To improve the distribution of funds the channels need to be expanded beyond the existing Accredited Provider regime. This could involve working with independent corporate finance advisers and with funds being disbursed by hedge funds and credit funds that have the benefit of the HM Government guarantee

The Corporate Finance Network having conducted research with 13,000 SMEs concluded that 18% could within the next four weeks become insolvent due to a lack of access to HM Government support under the CBILS.

The announcement of CBILS was initially welcomed by business. Every company should qualify provided they fulfilled one criteria: turnover of £45m or less. So far so good. However, even at the outset the seeds of disappointment in CBILS were sown.

On closer inspection the HM Government guarantee has been bolted on to an existing loan guarantee scheme (Enterprise Finance Guarantee) operated by the British Business Bank. This scheme involves guaranteed loans being offered through a list of Accredited Providers.

Overlaying CBILS on to this platform immediately creates two problems. First, if the business does not have an existing loan with the accredited provider then they are in reality, blocked from the scheme. The Accredited Providers first priority is to support customers with existing borrowings. The next priority is existing customers who use other services. The last priority is new customers. Signing up as a new customer of an accredited provider is very difficult in the current environment. Second, the existing scheme has a list of businesses which are excluded. Whether this list of exclusions is to be relaxed is unclear

Assuming the business clears the initial hurdles then it must submit a loan application which will be run through the normal credit processes and due diligence before being sanctioned. If the loan application would be accepted then the accredited provider does not have access to CBILS. In determining whether a loan should be approved an accredited provider can ask for additional security. Personal guarantees are generally required when a loan exceeds £250,000, and there is not adequate security.

It seems the accredited providers were caught on the hop with the Chancellors announcement of CBILS. This coupled with everyone being told to work from home and not travel has resulted in the providers being under resourced for reviewing the wave of applications being received. Mention is made of clearing banks receiving thousands of applications within the first week, which they cannot possibly process in a couple of weeks.

What is required is to expand the Accredited Provider distribution channel. This would involve, for instance, applications being made directly to the British Business Bank rather than through the accredited provider network. Evaluating these applications could be outsourced to the many corporate finance houses that have the capacity to assist. In addition, this resource could handle KYC/AML on-boarding.

Rather than relying solely on a sub-set of the banking system to fund SMEs, a network of hedge funds and credit funds prepared to fund loans against the Government guarantee, should be assembled. Part of the funding package may include either existing shareholders or other funders/sources funding particularly regarding the 20% requirement not covered by the Government guarantee. For this to work, the Government needs to seriously consider dropping the requirement that the guarantee be limited to 80% of the loan size. The Accredited Providers do not have the capacity, on a timely basis, to do the due diligence required to justify taking the 20% exposure for all parties who urgently require support.

This was posted in Bdaily's Members' News section by Tim Stocks .