Is CBILS misunderstood?

The Coronavirus Business Interruption Loan Scheme has come under increasing scrutiny and criticism. Some of it in my view is justified and some of it not, either through being misinformed or misunderstood.

 CBILS provides substantial benefits to the business owner:

• Government pays interest and all fees for first year.
• Directors on loans up to £250k do not give personal guarantees.
• Personal security cannot be used.
• Lower rates of interest apply and CBILS loans are to be offered first before commercial loans.
• Loans can usually be repaid early without penalty.

The downsides for the small business owner are:

• Additional debt is being taken on which will need to be repaid. It is not a grant and the company or individual if a sole trader is liable for the debt which will need to be serviced in addition to existing debt over a number of years.
• There remains total uncertainty in many businesses as to what trading will be like in the months and years ahead.
• It is a guarantee scheme -the Government has not invested any funds. At this stage all the loans are made from the lenders’ funds which in many cases, possibly excluding the major bank lenders, is limited.
• The process and paperwork required currently to assess and provide the loans does not lead to speedy loan delivery - they are loans after all.

As I have mentioned many times before, the banks have moved away from the smallest loans and are not geared to make decisions and even process the level of paperwork required to meet the unprecedented demand emerging. This also applies to many of the non-bank accredited providers.

New capital and simpler processes are required to ensure that we can save the businesses that have the potential to emerge and trade after lockdown.

The longer the lockdown period extends the more pressing will become the need for increased availability of capital which then needs to be turned into liquid resources speedily for small business survival.

By Steve Walker, ART Business Loans