More than three weeks since the Treasury’s coronavirus loans scheme was launched, only 5,000 ailing small businesses have received cash, raising concerns that companies in desperate need are missing out on emergency money.
According to the banks responsible for making the loans, fewer than 1 in 60 of more than 300,000 inquiries regarding Chancellor Rishi Sunak’s coronavirus business interruption loan scheme (CBILS) has resulted in a loan being approved.
The scheme, intended to encourage lending by banks by offering them a government guarantee for 80pc of the amount, is regarded as essential in keeping many of the the UK’s 5.8m small businesses alive. However, despite Sunak’s promise to do ‘whatever it takes’ to save the economy, business owners have complained of excessive bureaucracy.
There are fears that many small firms may not survive the coronavirus crisis without financial help. They can apply for grants of up to £25,000 but a British Chamber of Commerce (BCC) poll last week found that the complex application process and slow replies from the banks meant that just 1pc of firms have successfully accessed the grant.
Although 7pc of respondents had received grants, many had been unsuccessful. Of these, 86pc had been informed they had not met the criteria, while 14pc said that the response from authorities was too slow or never arrived.
Business Secretary Alok Sharma, responding to concerns that only a small number of applications for business support had been processed, said he had spent the last couple of days talking directly to some of the largest lenders who participate in the scheme and had made it clear that the loans had to be distributed as quickly as spossible.
Mr Sharma confirmed that £800m had already been paid out in loans in respect of the business support measures. And government sources said they expected the next set of figures to demonstrate ‘rapid growth’ in the sums being paid out under the scheme.
Increase in interest-free loans from £25m to £50m
In response to criticism, Chancellor Sunak is to overhaul the emergency loans scheme for larger companies and make state-guaranteed loans of up to £50m available under the Coronavirus Large Business Interruption Loan Scheme (CLBILS), the details of which could be announced as early as this week.
Currently, the Treasury is preparing plans to double the interest-free sums available to businesses under CLBILS to £50m.
Loans from £25m to £50m would be available to companies with a turnover of more than £250m, representing a sea change in the terms announced when the scheme was presented on April 3, which stated an upper threshold for lending of £25m for companies with sales of £45m to £500m.
Sources said yesterday that the Treasury was also likely to abolish the upper £500m turnover threshold in order to help even larger companies, ‘the stranded middle’, which cannot access a separate funding scheme operated by the Bank of England because they do not have an investment grade credit rating.
Aggregated turnover calculations
Criticism by many SMEs has been levelled at the speed with which the emergency aid plans have been devised, citing it as the reason why their applications are being rejected by the banks. Nonetheless, some business owners say they are impressed by how quickly ministers are willing to adjust the bailout programmes to remove bottlenecks.
A further CBILS sticking point is the aggregated turnover calculations which place companies with private equity backers beyond the scheme’s scope, resulting in lenders’ rejection of loan applications.
The complaint is significant because a substantial portion of the UK’s economy is backed by hundreds of billions of pounds of private equity funding, much of it invested in companies with a turnover of less than £45m.
Banking sources have been quick to point out that with most branch networks closed and unprecedented levels of absenteeism due to the coronavirus outbreak, the industry has worked tirelessly to put the loan schemes in place.