When Rishi Sunak was appointed as the new chancellor of the exchequer on 13 February, following Sajid Javid’s shock resignation, he hardly could have conceived of having to announce over £300bn worth of guaranteed loans for the nation's businesses.
Barely a month later, however, that is exactly what he was doing.
Mr Sunak made the announcement on 17 March alongside prime minister Boris Johnson.
A raft of “unprecedented” measures were confirmed, designed to bolster the struggling UK economy against a global pandemic which, at the time, was beginning to have an impact on business and now has drastically shifted the way in which everyone conducts their day-to-day lives.
The sum of £330bn – equivalent to around 15 per cent of GDP – is unheard of in modern times and, when the pledge was made, sounded to many like an astronomical figure.
The new loan facility was later confirmed to be, in fact, two different schemes; one for large companies – The Covid Corporate Financing Facility (CCFF) – and the other for smaller firms – The Coronavirus Business Interruption Loan Scheme (CBILS).
For the purposes of this article I will be focusing on the CBILS, as It is especially important for smaller firms during this period, due to the very nature of being an SME.
Very few businesses of this size have cash reserves large enough to carry them through extended periods of reduced income.
This is compounded by the fact that cash flow has, for a long time, been a key issue for SMEs’ survival, as they are subject to late payments that create problems for accounts departments even at the best of times.
The CBILS allows UK-based small businesses with revenues of less than £45m to apply for loans of up to £5m.
The loans are designed to help businesses survive a period of lost or deferred incomes as a result of coronavirus; whether that be due to enforced closure or reduced trade as a result of widespread social distancing measures enacted by the government.
The finance is intended to help bridge disruptions in cashflow to ensure that otherwise solvent businesses do not fold because of current circumstances.
Businesses who apply for these loans must, as well as being under the aforementioned limit of annual turnover, have a borrowing proposal that the lender:
- Would consider viable, were it not for the Covid-19 pandemic
- Believes will enable the firm to trade out of any short-term to medium-term difficulty
Alongside these requirements, the applying business must generate more than 50 per cent of its turnover from trading activity.
The CBILS refers to a group of business finance products for small businesses, which include term loans, overdrafts, invoice finance and asset finance facilities.
For term loans and asset finance the loans will be available on repayment terms of up to six years, while for overdrafts and invoice finance the repayment terms will be available for up to three years.
The government has pledged to guarantee up to 80 per cent of the value of these loans, in an attempt to encourage banks and other accredited lenders to approve loans which may otherwise have been seen as too risky.