Welcome to our latest Policy Update. In these updates, The Entrepreneurs Network focuses on recent policy development and sets out (nearly) everything an entrepreneur needs to know about the topic. If you’re joining us for the first time, you can read our past updates here.
The Government’s £330bn Coronavirus Business Interruption Loan Scheme (CBILS) has come under criticism over the past week. SMEs have complained that they’re unable to access the loans. In fact, under 1,000 firms have accessed the loans so far, despite 130,000 inquiries. Only businesses that could not receive a loan on commercial terms could apply for the guarantee. As a result, some businesses were quoted interest rates of 30%. While others who had qualified for the guarantee were asked to provide personal guarantees (even after the government had requested that banks don’t ask for them). In light of these criticisms, Chancellor Rishi Sunak MP has announced a significant overhaul of the scheme.
Extending the scheme
To prevent banks from pressuring businesses to sign commercial loans on unfavourable terms, the government is extending the loan guarantees to all viable SMEs and not just businesses who couldn’t access a loan on commercial terms.
Personal Guarantees
The Chancellor has banned banks from asking for personal guarantees on loans of £250,000 or less. For businesses borrowing more than £250,000 through CBILS, personal guarantees will be capped at 20% of the outstanding loans balance.
Large Businesses
To help the “missing middle” of businesses too big to benefit from CBILS but too small to access the Bank of England’s financing facilities, the government has announced a new Coronavirus Large Business Interruption Loan Scheme (CLBILS). It will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million. Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest, and more information will be announced later this month.
What’s missing?
The scheme still doesn’t provide support for all businesses. As I wrote in an article for Sifted this week: “By insisting that only businesses that were profitable before the crisis hit can access the loans through the Coronavirus Business Interruption Loans Scheme (CBILS), most startups and scaleups are locked out. Venture-backed startups typically run large losses early on, as they invest in growth.”
We’re going to make sure startups and scale-ups aren’t forgotten by the government. Let us know if you want to get involved. We’ve also made a survey so you can share your views on how the Government measures to limit the impact of COVID-19 are operating on the ground for SMEs, startups and scale-ups