THE IMPORTANCE OF THE BOUNCEBACK LOAN SCHEME TO SMALL FIRMS
As we end the sixth week of lockdown for the UK economy, the government continues to adjust its support for businesses affected by the Covid-19 shutdown.
This flexibility amongst politicians is a breath of fresh air and the Chancellor Rishi Sunak must be congratulated for responding to the concerns of entrepreneurs and CEOs.
The latest initiative involves changing the terms and conditions of the Coronavirus Business Intervention loans scheme (CBIL) which had attracted much criticism for being too slow in getting money out to struggling firms across the UK.
For once, Whitehall was not to blame and instead, the banking industry seemed to have been unable to cope with the demand for this type of lending through their present systems.
There was also the suspicion that some lenders were, instead of piling in to help the small firm sector in the way that they had been supported by the taxpayer during the last recession, were reluctant to risk any of their own funds under a scheme that was offering ‘only’ 80 per cent guarantee from the UK Government.
This meant that rather than being pushed through quickly, many businesses were being assessed as if they were applying for a normal loan in normal times.
With many other countries avoiding this logjam through extending the government guarantee to cover the whole loan, the Chancellor had come under pressure to do the same. Given that it was the smallest businesses that were facing difficulties in accessing capital, he decided that the best way forward was to offer a 100% guarantee for loans of up to £50,000.
Under this new Bounce Back Loans scheme, businesses will be able to borrow between £2,000 and £50,000 and access the cash within days by applying online through a short and simple form. No repayments will be due during the first 12 months and any interest for that period will be by the UK Government. More importantly, there will be no personal guarantee required as insisted upon by the Development Bank of Wales through their recent Economic Resilience Loan programme.
With businesses employing less than ten people making up the vast majority of firms in the UK and employing half of the workforce, this will be a critical step forward in ensuring that micro-businesses and start-ups survive the current crisis.
With regard to the wider CBIL programme, it would seem that this is also slowly gaining traction in getting funding out to small and medium sized firms.
According to the trade body UK Finance, the banking and finance sector has provided over £4.1 billion to SMEs through the scheme, with over £1.3 billion of loans been approved in the week from 21 April to 28 April 2020.
Over the same period, the number of loans provided through the scheme has increased by 8,638 to a total of 25,262, an increase of over 50 per cent.
Whilst there is no regional breakdown of the data, if this fund has been applied proportionally as one would hope through the hard work of banks in Wales, then it would be expected that around 1100 firms in Wales should have received £180m in loans so far.
This compares to the £36 million awarded to 585 businesses across Wales by the Development Bank of Wales since its Covid-19 Wales Business Loan Scheme was launched on Monday 30 March.
Of course, the Welsh Government took the correct decision in addressing the slow pace of the high street banks in delivering funding via CBIL and it was the right policy at the time when companies were desperate for finance.
In addition, the staff at the Development Bank must be congratulated for working their socks off to get these loans approved and out of the door quickly to support Welsh firms when they need it the most.
However, with the bounce-back loans being launched on Monday and indications that the funding is finally flowing from the mainstream banking sector, would it be a wise move to provide another tranche of funding to essentially replicate the UK Government programme?
With better terms on offer through this new scheme, I would certainly expect the Development Bank will refer all loan applications of less than £50,000 to existing providers unless, of course, it becomes a CBILs approved funder itself.
Therefore, the benefits of devolution has been made absolutely clear for businesses in Wales through the way that the Welsh Government, via its own development bank and business support system, has made additional funding available to complement what was being developed by the UK Treasury.
However, the clever policy move would be to not pay for something that someone else is already covering the cost of and with the next round of the Economic Resilience Fund to be released soon, our politicians in Cardiff Bay must ensure that any future efforts are focused instead on those Welsh businesses that have fallen through the gap in support.