The Treasury is finally set to extend its package of coronavirus rescue loans today, which will come as a relief for hundreds of businesses that had fallen through the cracks.
Firms which make more than £45m were denied access to the Coronavirus Business Interruption Loan Scheme (CBILS) launched last month.
Help was on offer to larger businesses through the Bank of England’s Corporate Financing Facility (CCFF), though this came with its own drawbacks because few UK businesses met the stringent criteria on how likely they were to be able to pay back the debt.
Making a move: Final details of the scheme will be unveiled by Chancellor Rishi Sunak
While many small firms struggled to get hold of CBILS, MPs and business lobby groups reported a huge unmet demand for loans among medium-sized to larger businesses.
Those companies will be hoping the Coronavirus Large Business Interruption Loan Scheme (CLBILS) will act as a sticking-plaster until the Covid-19 lockdown ends and they can get back up and running. Final details of the scheme will be unveiled today by Chancellor Rishi Sunak ahead of its launch on Monday.
All firms with a turnover of more than £45m will now be able to borrow up to £25m through the low-interest Government-guaranteed scheme, while those which make more than £250m can borrow up to £50m.
Though the introduction of CLBILS will come as a relief for larger companies, it will not address much of the criticism which has already been levelled at the Government’s coronavirus business bailout schemes.
The existing smaller CBILS is designed to help small and medium-sized firms borrow up to £5m, where their operations or cash flow has been disrupted by the Covid-19 lockdown and they desperately need money.
These loans, doled out by High Street lenders, were designed to prevent the smaller businesses which form the backbone of Britain’s economy from falling apart. And as an incentive to banks to make the loans, t h e Government announced it would guarantee 80 per cent of any losses the banks suffered under CBILS.
But the launch of the scheme has been beset by controversy and confusion. by Lucy White Only £1.1 billion has been handed out so far, a far cry from the £330 billion which Sunak envisioned when launching his string of business bailouts. And only one in five of the 28,460 formal applications for a CBILS loan has been approved by banks – or 6,020 – meaning many cash-strapped businesses are still clambering to make ends meet.
Mike Cherry, chairman of the Federation of Small Business, said feedback had been that the process was ‘very demanding’. Sunak has already had to modify the scheme to ensure banks weren’t prioritising their own high-interest commercial loans. And even the Financial Conduct Authority has stepped in, writing a letter to lenders this week urging them to get money out of the door faster.
For larger firms, the Bank of England’s Covid-19 Corporate Financing Facility (CCFF) has not been as successful as hoped. The CCFF is designed to take the pressure off bigger companies by buying their newly issued short-term debt, giving them money so they can pay for urgent outgoings such as wages and supplier invoices.
And although the facility is potentially unlimited, with Bank of England governor Andrew Bailey promising to do ‘whatever it takes’ to keep the economy on track, only £7.6 billion has been lent so far.
Part of the problem is that the business needs to be categorised by a credit ratings agency as ‘investment grade’, meaning it should easily be able to pay back the Bank of England’s loan. But analysis by ratings agency Fitch showed only around 100 companies in the whole of the UK are in this bracket.
So if businesses were already struggling at the beginning of March – as many were especially, after a torrid time on the High Street – they will have little luck in getting relief under the CCFF.
A grant system announced by Sunak for all small businesses sounded like it would be more simple to administer. Any firm which receives small business rates relief, because its property has a rateable value of under £15,000, is automatically eligible for a £10,000 grant.
But property adviser Altus Group claims just 9 per cent of the £11 billion earmarked by the Government under this scheme has reached struggling small companies, most of which can no longer operate under lockdown rules. Firms should not need to apply for the grants, which are being doled out by local councils. But many have been inundated by the work.
Altus’s Robert Hayton branded the delays ‘unacceptable’, adding: ‘The money needs to get to those most in need far quicker.’
Companies in the retail, hospitality and leisure sector – which has been hit particularly hard by the coronavirus lockdown – can claim a little more, and are eligible for a £25,000 grant if their property’s rateable value is between £15,001 and £51,000. But this scheme too has been beset by delays.
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