- 03 Apr
Government CBILS Approval Rate Just 0.8%
According to a report in the Guardian (02/04/20) in the week since the UK Government launched the CBILS (Coronavirus Business Interruption Loan Scheme) there have been 130,000 enquiries from businesses seeking the funding.
CBILS Week 1 - Only 0.8% Approval Rate
The article reports that only 983 companies had been approved for loans, so far - that is a loan approval rate of just under 0.8%. The article goes on to call the scheme "fiddly, slow and rested too heavily on banks’ judgments about eligibility".
Government Removes Personal Guarantees
The Government response to this disappointing result has been to re-jig the scheme, including the removal of personal guarantees for loans under £250K.
Whilst I am sure this will be welcomed by business owners, I don't think it is the presence of personal guarantees that was the issue. This is evidenced by the significant number of enquiries.
Furthermore, business finance industry commentators have already observed that removing PGs takes away responsibility from the borrower to ensure they repay the loans - this could make lenders even more cautious. Others have gone further and questioned the removal of responsibility as a potential future source of insolvencies, when borrowers could decide to phoenix their businesses, to write off the debt to start again. This could have a significant impact on the public purse, and the lenders.
What we hear, from the business loan market, is that many lenders have already tightened their lending criteria for business loans generally e.g. requiring home ownership (still NOT required for all invoice finance facilities). Whilst its not good news, it is what you might expect in a climate when many businesses are being forced to close their doors, for an indeterminable period of time.
The Real Problem With CBILS
This brings me to what I feel is the real problem with the CBILS scheme.
The Government are guaranteeing 80% of the lending. This means that the lenders are still assuming 20% of the risk. So if its a £100K loan in question, the lender will be "on the hook" for £20K (with the Government assuming the other £80K). A lender is still going to be concerned about £20K being repaid, the government guarantee just reduces the amount that they are concerned about. Additionally, with the new adjustments to the scheme, the lender will not have the comfort of a personal guarantee - which could make them even more cautious about lending.
See also: CBILS and alternative funding.