As a result of the crushing impact that the pandemic was predicted to have on businesses, and the wider economy in general, the government announced the CBILS (The Coronavirus Business Interruption Loan Schemes and Future Fund) at the UK Budget on the 11th March 2020. The schemes were then launched for applications on 23rd March 2020 as payments were made in the ensuing weeks and months. With it now being around a year since the first set of payments were issued, it means the repayment process from businesses has now begun.
This comes at a time when many businesses who were awarded the loans are still very much unable to operate at maximum capacity. A call by many to extend the schemes, or even introduce a similar stimulus package for cash-strapped businesses, is yet to materialise into anything concretely announced by government. This has ultimately put a huge number of businesses that have borrowed using the loan schemes under huge pressure.
We spoke with Nordens’ Head of Corporate Finance, Darren Hahn, about just how successful the CBILS and Bounce Back Loan schemes have been, the process of repayments and what other options are still out there for companies needing a financial injection to boost their operations.
With it being over a year since applications and funding were allocated for the CBILS (The Coronavirus Business Interruption Loan Schemes and Future Fund), do you believe the scheme has been an overall success?
Overall, I do feel that it has been a success. It has got a lot of businesses that were struggling, or otherwise would’ve been, out of serious trouble. The Bounce Back Loan probably more so given the extremely low interest rate. I think without this emergency funding, the government restrictions could have and probably would have crippled and forced many businesses to close. This lifeline has allowed thousands of businesses to survive amidst some of the most unpredictable and challenging times we’ll ever have to face. A stimulus package was greatly needed and thankfully this was delivered.
The first set of repayments will now be due for many successful applicants of the CBILS. What is the process for this and is it practical?
When the Bounce Back Loan and CBILS were taken and accepted by businesses, a direct debit would have been set up for the payments to automatically be collected by the lenders, so there shouldn’t be much for anyone to do in regards to admin or sorting our bank payments.
However, it is definitely worth mentioning that you can repay both of these earlier than the initial first repayment date, if you choose to do so. By doing this, it will also mean you will not be charged an early repayment charge. So as long as its manageable and the right thing or option to do, I’d highly recommend paying it back and saving the interest.
Have lenders been able to cope with the number of applications from businesses, and has the approval process been lenient?
To be honest, no the coping process hasn’t been smooth. Lenders have been overwhelmed during this whole process (CBILS specifically as the Bounce Back Loans were a lot more automated and straight-forward). The amount of enquires, applications and general appetite for the loans caused huge delays with lenders taking typical response times from 24-48 hours to 2/3 weeks in some circumstances.
This created a huge backlog which had serious repercussions that of course negatively impacted the businesses involved, who were desperate for the funds in a short space of time but just couldn’t get hold of it in a reasonable timeframe. It also forced many businesses to take interest rates that were not as favourable as lenders proposed, but to avoid the delay and strenuous process, they had to take the funds to avoid not surviving.
The majority of lenders have shown positive reactions and good leniency towards the applications. However, at the same time it has been and still is a very uncertain time and therefore understandably, lenders risk appetite has ultimately changed, and they are protecting themselves a lot more.
With the CBILS loan scheme closed for applications, what other options are out there for businesses of all sizes, to achieve funding and aid to combat the scale of the pandemic?
The normal (pre-COVID) funding is and has always been available. This will include things such as asset finance, invoice finance, commercial mortgages, resolving credit facilities, term loans and many more.
There is also the possibility for a new Recovery Loan Scheme. However, this isn’t the fantastic solution that a lot of people think it is. Firstly, just because you meet the criteria for the Recovery Loan Scheme it does not mean that you will be granted one by the lenders. Lenders are being massively encouraged to provide their own products alongside the Recovery Loan Scheme. This isn’t necessarily a bad thing though as you may actually get a better interest rate with the lenders own product than under the Recovery Loan Scheme (subject to a personal guarantee).
One thing we are seeing is massive delays and turnaround times for the Recovery Loan Scheme. Therefore, it would be sensible to firstly identify the amount of funding you need and how quickly you need it, as it may be best to look at alternative routes that are better suited to you and your preferences.
Do you think the CBILS loan scheme will be looked back upon as a saviour for businesses during the turbulent time of the pandemic?
I think that lenders have an adverse opinion on the CBILS compared to businesses, who have had a positive outlook on the CBILS. Taxpayers may feel differently as the take up on the scheme may result in higher tax rates in the future to help recover the financial outlay that the pandemic and subsequent stimulus packages have enforced. However, taxpayers are also business owners who needed the funds so looking upon CBILS with disdain is counter-intuitive in my opinion.
I believe it definitely has been a fantastic saviour, but I fully understand why lenders would not see it this way. I really feel that it has been a positive step that has allowed a lot of businesses to continue to see the pandemic through rather being forced to close.
We hope this has outlined to you the process of the repayments for the CBILS and Bounce Back Loan scheme. If you require any more information on any of the government COVID loans, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.
We’re now also offering COMPLIMENTARY Strategic Consultation Sessions up to 30th June 2021. Please contact Nordens’ Director of Strategic Consultancy Joe Sword at js@nordens-strategic.co.uk or 020 8530 0720.
