There should simply be a Coronavirus Business Interruption Loan Scheme (CBILS) with 100% Government-backing on loans up to £250,000, which we had called for from the outset.
In the last week, the banks relaxed rules for the CBILS, with future business forecasts no longer required to assess viability. In addition, the new ‘Bounce Back Loan’ launched yesterday, which provides loans to businesses of up to £50,000, has a fast-tracked application process which also does not require future business forecasts.
The banks are relying on historical business performance to assess viability, but the economic environment is now very different and will be in a state of flux for months to come.
This is a gamble for the Government who are effectively assuming these businesses will be able to recover based on their past performance and repay the loans out of future profits and cash flow. The taxpayer is now underwriting millions of pounds of unqualified loans.
Whilst something needed to be done to get the loan schemes moving, the Government should do more, whilst protecting taxpayers’ interests.
For the banks, the relationship manager should be given more authority to allow immediate overdraft facilities for CBILS applications up to 25% of the amount applied for, if they believe the business is viable, based on their own assessment. This would allow for quicker decisions and money to get to businesses sooner. Finally, the viability assessment should be made over a 15-year repayment term, rather than the current five-year term, which is more realistic with the current situation and would allow for more applications to be successful.
It is positive that the Chancellor, Rishi Sunak, reacted to criticism of the original version of the loan scheme, as businesses were finding it difficult to access the loans, and some were rejected after a lengthy application process. Easing some of the requirements has certainly started to get the money moving into businesses, and even more is expected to flow under the Bounce Back Loan Scheme, which saw hundreds of applications on the first day of its launch. However, having the CBILS with 100% Government-backing on loans up to £250,000 with banks undertaking the same level of review, including forward forecasting, would be simpler and provide the taxpayer with stronger safeguards.
Some small but important changes would offer a solution to providing more immediate cash to businesses, whilst having a suitable viability assessment – this reduces the risk of default and providing better safeguards to taxpayers’ interests.
If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or Richard Churchill.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.Bounce