Posted on April 16, 2020  
by Noel Guilford

When the Rishi Sunak, the Chancellor, said he was making £330bn available to guarantee loans to businesses and “would do whatever it takes” to make sure UK businesses survive the Covid-19 pandemic he was hailed as a Chancellor who understood the problems small businesses would face.

Four weeks on and only one in five UK businesses that have formally applied for government-backed loans have been granted emergency funding proving that the programme is failing to get money out fast enough to support struggling firms.

A total of 6,020 loans worth £1.1bn had been issued under the coronavirus business interruption loan scheme (CBILS) as of Tuesday out of the 28,460 formal applications – a mere 21%. In total more than 300,000 businesses have made enquiries about seeking help from the scheme.

A survey released on Wednesday by the British Chambers of Commerce showed that just 2% of respondents had successfully accessed the CBILS programme this week. Businesses said lenders were failing to respond to informal inquiries fast enough, if at all.

They said: “The major banks claim their approval rates for standard commercial loans are many times higher than that. These loans are state-backed, so approvals should be higher still. There’s still a lot of work to do.”

The obvious question is why are so few loans being approved when statistically, the rate should be higher than for loans that are not guaranteed. There are three likely reasons:

  1. Despite the state-backed guarantee, lenders are reluctant to lend to businesses that may fail even if they meet the qualifying criteria.
  2. The amount of information required to support a loan application is considerable and includes a cash flow forecast showing how and when the loan will be repaid, which for many businesses in lockdown is impossible to give with any accuracy, and up to date management accounts.
  3. The business must be able to prove that it was viable and would have been able to finance and meet the terms of the loan in 2019. For early stage businesses this may not be possible.

There is also concern about the future of Britain’s loss-making start-ups, which are not eligible for CBILS but should not be allowed to fail.

Ed Miliband, the shadow-Chancellor said: “The question of support for early stage, loss making start-ups remains a pressing one. The list of businesses that spent their early years in the red only to go on and be great successes is as long as your arm. They must not be abandoned.”

My assessment – when the scheme was announced – that it wasn’t fit for purpose has, regrettably, been proved to be correct. But there is a lot that entrepreneurial business owners can do to maximise the chances of their application being successful including:

  1. Finalise your most recent annual accounts (with your accountant’s help if necessary). This should take no more than 3-4 weeks after your year end.
  2. Set up cloud accounting using, for example, Xero Accounting to produce up to date management accounts.
  3. Create a cash flow forecast that extracts data from Xero so it integrates with your management accounts (there are numerous apps that will do this for you).
  4. Involve your accountant who may recommend using a finance broker to assist in placing your application with the lenders who are processing applications (not all of them are despite being on the accredited list).

If you need help with any of these four steps you can book a no-obligation call with me.

Good luck and stay safe.

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Noel Guilford

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