Swindon & Wiltshire News
Government ‘reacting to newspaper headlines’ over business loans, says expert
A corporate finance expert has criticised the government for ‘reacting to newspaper headlines’ rather than ‘making proper thought out policy decisions’.
Mark Neath, a director at Melksham-based financial experts Old Mill was reacting to changes to the government’s Coronavirus Business Interruption Loan Scheme.
The government was forced to introduce new rules – which came into force on Monday – after the Treasury revealed it had received 130,000 loan enquiries from SMEs, but that fewer than 1,000 had been approved.
The changes to the scheme should make it easier for firms to access loans going forward and will also mean more businesses are able to access financial support during the lockdown.
Mark said he would not be surprised if the rules changed again soon.
The basic principles of the business loans scheme remain the same:
- It is open to SME businesses with up to £45 million turnover
- They can apply for finance of up to £5 million
- The government guarantees 80 percent of the loan, with no guarantee fee
- Government will pay arrangement fee and first 12 months’ interest
- Loans and asset finance are up to six year term. Overdraft and invoice finance are up to three years
The key changes, explained Mark, relate to security requirements.
Previously, a government-backed CBILS loan was only available to firms that were unable to borrow on normal commercial terms from their bank, where the reason for the decline of the application was insufficient security.
Following the changes, insufficient security is no longer a condition to access the scheme.
Lenders will also be banned from asking company owners to provide a personal guarantee on loans up to £250,000 but businesses wishing to take out a loan will still be 100 percent liable for the debt.
Personal guarantees can still be required for larger borrowing, but the new rules make clear that this is capped at the 20 percent of the loan not covered by the government guarantee; and that the lender cannot take a charge over the business owner’s principal residence.
However, concerns that lenders are charging interest rates of up to 30 percent have still not been addressed.
“It’s certainly a positive step that larger businesses can now access funding – that was an obvious gap in the support on offer – but the government appears to be making announcements in a hurry and then trying to fill in the detail later which is understandable given the circumstances,” said Mark.
“Unsurprisingly, this leads to imperfect schemes being released, but it’s alarming that changes seem to be reactive to newspaper headlines, rather than well thought through policy decisions. I wouldn’t be surprised to see further announcements on this in the coming weeks.
“For all the criticism which they receive, banks by-and-large take a responsible approach to lending. The point which always seems to be omitted by commentators demanding easier access to borrowing is that loans need to be paid back.
“I would urge any business looking to a CBILS loan to carefully consider whether it’s the right thing for their business; take all steps possible to minimise the borrowing requirement; and model their cash flows in recovery period on a range of scenarios to assess the affordability of repayments.”
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