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April 7, 2020updated 24 Jul 2020 6:07pm

Prising open CBILS is an FLA work in progress, but time is running out

By Alejandro Gonzalez

The government rescue response to the Covid-19 crisis for UK SMEs has undergone significant reform since its birth in the Spring Budget and pushing for change behind-the-scenes has been the sector’s trade body. Alejandro Gonzalez reports

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The unprecedented national shutdown of businesses to protect the country against the spread of coronavirus was met by a series of financial rescue measures by the government, with the Coronavirus Business Interruption Loan Scheme (CBILS) aimed at helping small businesses.

Under CBILS the government planned to give lenders 80% guarantees to offer small businesses interest-free borrowing of up to £5m.

But no sooner was CBILS announced on 11 March that demands to widen its appeal and eligibility came in thick and fast, not just by the businesses seeking access to the funds, but by those hoping to arrange the funding.

Before the Budget announcement, the British Business Bank (BBB), which was tasked with overseeing the scheme, was a little known development bank that functioned as a club, with lenders having to be especially accredited to offer government-backed schemes. At the outset of CBILS, the government-owned bank had over 40 accredited lenders on its books and BBB funding was limited to companies with revenues below £45m.

Simon Goldie, head of asset finance at the Finance & Leasing Association (FLA), said: “We called on that to be changed when CBILS was first announced. We felt it wasn’t going to capture all the businesses that might need that help.”

Opening up CBILS

High on the agenda for the asset finance community was to raise the threshold to allow bigger players to access the CBILS funds.

Also causing consternation was the scheme’s business sector limitations, with FLA members wanting lending to be extended to financial service providers, underscoring the fact FLA members might – in the fullness of time, if not currently – come knocking on the doors of their banks seeking CBILS-type bridging arrangements.

On both counts, the FLA has claimed victory in overturning old restrictions.

Last week, the Chancellor, Rishi Sunak, raised the £45m earnings limit. He said a state-backed loan package for companies with revenues of up to £500m would soon be unveiled offering loan amounts capped at £25m.

And, despite being originally excluded from the scheme, independent and non-bank lenders found themselves newly eligible for CBILS, the FLA declared in a press release last week.

The scheme has its limits though; not all financial service providers are included in the scheme. The FLA added that “deposit-taking banks and insurers writing in insurance as principal are not eligible for CBILS. Other financial services firms are in principle eligible.

“For example, FCA [Financial Conduct Authority] regulated financial intermediaries (eg credit brokers, finance houses, equipment renting/leasing businesses, financial intermediation firms); and firms that offer independent advice/services on financial matters (eg accountants, auditors, mortgage brokers), may be eligible provided that they satisfy the other eligibility criteria of the scheme.”

Speed is of the essence

Rolling out the scheme as quickly and efficiently as possible remains a prevailing concern for members, as time is quickly running out for SMEs, said Goldie.

The Treasury noted on 5 April that since the scheme opened for business on 23 March, only £90m of loans had been approved to 983 businesses. In an update on 8 April, UK Finance, the trade body for UK banks, said that 2,022 loans (totalling £291.9m) had been drawn down through the coronavirus scheme. According to government statistics, there were 5.9m SMEs in the UK in 2019. The current uptake of the scheme represents a tiny proportion of the numbers who may need financial aid.

The FLA has argued that the accreditation process “needs to be as quick as possible, so if a funder is regulated by the PRA [Prudential Regulation Authority] or FCA, this should be taken into account,” said Goldie.

A survey of 13,000 SMEs by the Corporate Finance Network, representing regional independent accountancy firms across the UK, predicted last week that 18% of all SMEs would not survive the next four weeks in the face of the Covid-19 lockdown, despite the government’s lifeline.

The group reported that should the lockdown last three months or more “the situation looks even more dire with accountants in the network reporting that 31% will have to close down their business by June.”

These findings echo an earlier poll on CBILS by MarketFinance – carried out between 20-22 March of 5,000 business owners of UK Ltd companies. One key finding was that because most businesses (67%) have a pre-existing loan, their biggest concern (36%) is making repayments for any additional loan.

MarketFinance, an invoice finance provider, puts the growing demand for its services down to the fact that a significant number of SMEs simply cannot afford the luxury of taking on more debt.

Work cut out

With asset finance brokers able to write plenty of regulated business in the current climate – including funding sole traders and micro-businesses – Goldie said the FLA is keen to reduce the red tape of the Consumer Credit Act (CCA) which is holding back genuine funding.

In a letter last week to John Glen MP, Economic Secretary to the Treasury, the FLA director-general described the CCA as having several provisions that “get in the way of lenders offering customers – whether consumers or SMEs – swift and simple solutions to requests for help without seeking their agreement to long and complex documentation.

“Whilst it is tempting to suggest lenders just breach their legal obligations in current circumstances to deliver a better outcome for customers, this carries a significant risk that the loan agreement would then be unenforceable in the future or provide a basis for a compensation claim,” Stephen Haddrill wrote.

Goldie said the FLA is in talks with the FCA and Treasury “about simplifying” the legislation.

He said: “What we’re saying now, given the urgency of the situation, where members want to give forbearance very quickly and you have a regulatory regime that doesn’t quite allow that – you need to make some changes.”

Editor: This article was updated with fresh statistics on 9 April 2020.

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