SMEs ‘in the dark’ about government Covid-19 assistance
The UK government has not provided enough information on assistance for businesses under the coronavirus threat, keeping SMEs “in the dark”, Think Business Loans has said.
Jamie Stewart, CEO of Think Business Loans, an online commercial finance brokerage, told IBS Intelligence that the government has not been fully clear with their statement and offer during the biggest threat to SMEs since the financial crash of 2008.
“As always the devil is in the detail. The CBILS is an insurance policy simply aimed at making the lenders feel slightly more secure to lend. These lends will be extremely stringent (as not to risk the government’s money), and the business must show demonstrable maintainable revenue, and they will not be throwing good money after bad,” Stewart said.
“On the face of it, the government announcement seems to offer valuable assistance to businesses of all sizes, but the lack of detail means many business owners will still be in the dark about whether or not they will provide the necessary financial lifeline.”
The Think Business Loans CEO noted that according to a survey by the Institute of Directors, one in five SME directors believe the outbreak poses a server threat to their business, signalling a collapse in business confidence across the UK.
Notably, the government has not got “anywhere far enough” to help smaller businesses like pubs and restaurants directly affected by social distancing, Steward said.
“Let’s take the loans, for instance – will business owners really be able to afford to rack up debt to see them through this crisis, knowing that it’s effectively going to be dead money that they’ll potentially never be able to pay back, even if they get through the crisis and start turning a profit again?
“And how are businesses meant to start planning now when there are still no details on the loan mechanisms or repayment terms? They need to speak to a commercial finance brokerage.”
The answer to that lies in the fact that it’s not actually the government who will be providing the loans, Stewart explained. The loans will come from the about 40 lenders affiliated with the British Business Bank, each of which are private companies that will incorporate both risk and profit into the terms of lending.
Furthermore, the interest rate is set to reflect the risk to the lender – the higher the risk, the higher the interest rate – so if banks are going to be lending to businesses who might not survive the crisis, or not have the means to meet repayments if they do, then the interest rate will be set accordingly.
“The government has stressed there’ll be no interest payments for the first six months, and rates on these loans will be ‘favourable’, which means it may still be single-digit interest rates as the banks are borrowing from the Bank of England as 0.01%.
“And any businesses that apply will need to show continual affordability and not signs of distress – it may sound harsh, but banks will not be throwing good money after bad – and business owners might even need to put up security on the loans.”
Think Business Loans has recently launched an app for SMEs, enabling them to monitor credit score, and Stewart is confident online fund solutions will continue to boost the economy during the disruption caused by the coronavirus crisis.
