Government patches up small business loan scheme

Bank of England governor Andrew Bailey thinks firms seeking less than £25,000 may need more support © Shutterstock

(Image credit: Bank of England Governor Andrew Bailey © ANDY RAIN/EPA-EFE/Shutterstock)

published 24 April 2020

The government’s flagship loans scheme for small and medium-sized businesses, the Coronavirus Business Interruption Loan Scheme (CBILS), has not had an auspicious beginning. Data from UK Finance, the group that represents the banking sector, shows that lenders have so far received a relatively meagre 28,460 loan applications – and approved just 6,020 advances.

Interest does appear to have picked up since the first few days, when only a handful of loans were agreed. Changes to the scheme, under which the government guarantees 80% of loans made by banks and lenders, seem to have had a positive effect.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Nevertheless, critics of the scheme insist further reforms are necessary if take-up rates are to rise substantially. Some have suggested that the state guarantee 100% of each advance in order to encourage lenders to be less cautious; similar schemes in Europe appear to be attracting more support. There have also been calls for the banks to relax their own lending criteria, with some firms complaining about affordability constraints.

Ministers are understood to be nervous about offering 100% guarantees, insisting that banks should have a commercial interest in the loans they make. But there is a growing consensus that the smallest borrowers – perhaps those seeking less than £25,000 for finance – may need further support if the banks are to be encouraged to lend to them. Bank of England governor Andrew Bailey is among those suggesting this may be required.

Elsewhere, the Treasury has shown itself willing to be flexible in order to ensure Covid-19 rescue packages reach as broad an audience as possible. In particular, its furloughing scheme, which opened for applications on Monday and funds the cost of 80% of wages for employers laying people off temporarily, originally had a cut-off date of 28 February. However, that was subsequently changed to 19 March following complaints that workers who moved jobs during the first half of the month would miss out.

For employers, the change means that any employee for whom they sent payroll information to HM Revenue & Customs by 19 March under the real-time information system is now eligible for furloughing. The scheme has also been extended until the end of June, enabling firms to keep staff on their payrolls, with the government picking up the cost of employing them, until then. Staff may not work for the business while furloughed, but can take up work elsewhere.

• The government has addressed employers’ anxiety about annual leave rules by relaxing the regulation that prevents staff carrying statutory annual leave over into a new holiday year. The rules are designed to ensure workers take paid holiday but they have been causing problems with so many firms effectively closed. Workers may now carry over annual leave not taken owing to the pandemic for up to two holiday years.

The government this week unveiled financial assistance for startups that have effectively been excluded from other efforts to support small and medium-sized enterprises through the Covid-19 crisis. Under the Future Fund, ministers have pledged a total of up to £250m of funding for such companies but, to qualify, they will have to raise an equal amount of finance from private investors. They must also have raised at least £250,000 in funding from private sector investors over the past five years.

However, there is some concern that private investors will be unwilling to put up the matched capital that the government is insisting on as part of its eligibility criteria. While this restriction is designed to ensure that it is the most viable startups which secure finance, the Enterprise Investment Scheme Association warned that the Future Fund appeared to offer better terms to the government than to private investors, many of which might choose not to support it.

The intervention follows mounting concern that even those insurers whose policies appear explicitly to include cover for businesses forced to close because of public health issues are turning away claims. Hiscox is facing legal action after claiming its policies were not meant to cover pandemic risks, despite covering losses incurred by firms after “an occurrence of any human infectious or human contagious disease”.

Explore More

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.