Borrowers under the Coronavirus Business Interruption Loan Scheme (CBILS) scheme need the same options as those of the Bounce Back loan scheme if the Government is serious about allowing businesses to pay as they grow.
The Government needs to be more creative in its solutions and be equitable to both itself and business owner, which it is not at the moment.
Interest only payments for the CBILS scheme should be made for up to six months, available three times during the period of the loan. Repayments should immediately be paused for up to six months for those borrowers who need further assistance.
The Chancellor’s announcement on Friday was not new. It was a reinforcement of his November message in the Winter Economic Plan statement.
While these steps will be welcomed by Bounce Back Loan borrowers, where loans were a maximum of £50,000, it remains for many, pay as you survive, as opposed to pay as you grow. This is not a great strategy on the part of the Government.
The measures allow businesses a longer time to repay their debts and flexibility on payment holidays, but no new funding.
As the first payment dates for Bounce Back Loans approach this will help businesses survive, but this does not create growth or more importantly address the same issues for larger business that borrowed under the CBIL scheme.
When the Bounce Back Loan scheme was introduced, the limit on borrowings was £50,000. Many borrowers have already drawn their maximum entitlement when struggling to bounce back after the first lockdown, never mind coping with the second or third.
To ensure that companies who borrowed under the Bounce Back scheme can bounce back again, the Government needs to revisit the maximum lending criteria for viable businesses and increase the scheme to £100,000. This would make a real difference.
For those borrowers under the CBIL, scheme the same measures need to be urgently addressed as they approach the first payments due under that scheme. The current repayment profile of repaying these debts over five years results in high monthly payments. This will cause financial difficulty for many businesses as they seek to get back on their feet, as well as forcing businesses to make decisions not in their best long-term interest when deciding which debts it can repay if the business also has traditional borrowing from banks.
High levels of debt for businesses are unhealthy, stifling reinvestment which could limit diversification and development. A repayment profile for CBILS lending linked to profitably needs to be explored.