As reported in our Policy Update earlier today, the Coronavirus Business Interruption Loan Scheme (CBILS) has been overhauled.
The Chancellor announced the extension of loan guarantees to all viable SMEs – not just businesses who couldn’t access a loan on commercial terms; banks are no longer able to ask for personal guarantees on loans of £250,000 or less; and, the government has announced a new Coronavirus Large Business Interruption Loan Scheme to help the “missing middle”.
Read the statement here, find out more about CBILS on the British Business Bank website and sign up to our Policy Updates here.
We mind the gaps
The CBILS reforms are welcome, but there are important gaps – particularly for ambitious startups and scale-ups.
Businesses can only access the loans if they would have met banks’ lending criteria in normal times. As a result, loss-making equity-backed startups aren’t eligible. As I’m sure you know, the reason these startups are loss-making is because they’re investing for growth.
Under normal circumstances, many of this cohort of businesses would go on to produce revolutionary products and services, employ hundreds of people and pay significant tax revenues to fund our public services. But these aren’t normal circumstances. Liquidity is going to dry up and these businesses need support to see them through to the other side of this crisis.
Our research director Sam Dumitiru has set out what we think needs to be done in an article for FT’s Sifted, which I encourage you to read and share.
We think the proposed Runway Fund would help plug the gap. As Sam writes: “It would give early-stage businesses up to £500,000 to take them to their next funding round. Startups would get the cash in return for loans that convert into equity at a discount at their next funding round. A £300m non-profit fund with co-investment from the private sector would be able to help 600 startups. To put that in context, that’s around half of all early-stage equity-backed startups in the UK. This shouldn’t come with a large fiscal cost either. In the long-run, venture capital is a high-performing asset class.” Led by Brent Hoberman and our friends at Coadec, this scheme – or something like it – is vital.
On CBILS, we think the government should broaden the definition of viable to take account of unit economics on current products, past adherence to budgets and credit history. As Elvie, one of Britain’s fastest-growing scaleups, with an eight-figure valuation and profitable product lines, told Sam: "Last year alone we grew revenue by more than 400% and we’re on track for similar growth this year. However, like other hyper-growth tech companies, Elvie is not yet profitable. This means we are unable to access any support under CBILS because of rigid affordability criteria.”
Also, a temporary tweak to Venture Capital Trust (VCT) rules could act as a lifeline for companies they fund. “In normal times, VCTs are restricted from investing more than £12m (£20m for knowledge-intensive startups) in a single company to ensure the scheme is targeted at businesses that otherwise couldn’t raise sufficient capital. If the limits were temporarily raised, the scheme could be repurposed to allow startups to raise bridging capital from investors they already work with.”
This isn’t the only gap – for example, read the ERC’s study on how 750,000 self-employed are missing out on UK coronavirus support – but it’s a glaring one. And these aren’t the only solutions, but we think they should be prioritised. If we don’t act, this will cast a long shadow over the UK’s economic recovery.
A time to innovate
Innovate UK will invest up to £20 million in innovation projects. The aim of this competition is to support UK businesses to focus on emerging or increasing needs of society and industries during and following the Covid-19 pandemic. By fast-tracking innovation, Innovate UK hopes the UK will be better placed to maintain employment levels, a competitive position in global markets and make the UK more resilient to similar disruption.
Your application must demonstrate both realistic and significant benefits for society (including communities, families and individuals) or an industry that has been severely impacted and/or permanently disrupted by the Covid-19 pandemic.
The project’s eligible cost must be between £25,000 and £50,000. You can claim 100% of your project costs up to the maximum of £50,000 and these will be paid in advance of the project start date. The competition closes on 17 April 2020. Find out more here.
Growth hubs
One local resource we haven’t mentioned in these newsletters so far is Growth Hubs. These are local public/private sector partnerships backed by the Government. The network of 38 Growth Hubs across England are free to use and should be able to advise businesses on local and national business support – including schemes put in place to help businesses through the current Covid 19 situation.
I should say, we have had mixed reports about how useful they’ve been in the past. But you might be lucky to live in an area with a particularly good one, or, like so many individuals and organisations, I wouldn’t be surprised if they’re rising to this very significant challenge. Find your local hub here.
Stay in touch
We’ve created a short survey to help you keep us updated with how the government schemes to support you and your business are actually working. If you give permission, we can pass on your thoughts to the government and/or the media. I’ll still get back to you via email, but this should make it easier for us to keep track of the hundreds of emails we are getting. Feel free to update us here, whenever you have something that you want to share.
Read the whole thing here, and sign up for our newsletter here.