CBILS and BBLS Deadline Approaching – What Comes Next?
The deadline for applications under the Coronavirus Business Interruption Loan Scheme (“CBILS”) or Bounce Back Loan Scheme (“BBLS”) is (currently) 30 November 2020, extended from the original deadlines of 30 September 2020.
While these Government-supported schemes for SMEs have undoubtedly helped some businesses survive during the pandemic so far, hopes that the UK economy would be disrupted by a V-shaped recession lasting only 6 months or so seem to be misplaced. Any loan applications or amendments that assumed things would by now be getting back to normal are likely to be inadequate.
The UK Government has warned that the economy is likely to face a further 6 months of disruption – they hope that things will have improved by the Spring of 2021, but there is no guarantee of this – and businesses will be re-assessing their models and prospects with this in mind.
Some businesses have found that since the initial lockdown in March, things have not been as bleak as they might have been. Borrowers that assumed 12 months of disruption when seeking additional funding (or in seeking payment holidays or covenant adjustments from their lenders) will hopefully have some slack that they can use in the coming months.
However, other borrowers, normally perfectly viable and profitable businesses, are in sectors that continue to be severely Covid-restricted. They are likely to need to either approach their lenders for further relief under existing loans or, if they are able to take on further debt, move quickly to access the existing schemes, or hope that further support will be available for the winter months ahead.
Will the Government extend the availability period for CBILS and BBLS beyond 30 November 2020?
CBILS loans have been very popular, and seem to have been effectively targeted at viable businesses that are adversely affected by the pandemic restrictions, their fundamental credit position checked by the lenders involved.
Some businesses have taken advantage of CBILS loans just because they were available, rather than being needed, and are planning to repay them early (if they are able to) at the end of the “interest-free” 12 month period. It remains to be seen how much of CBILS money that has been paid out is paid back early, but even if the Government has, in many cases, been paying the fees and interest so that businesses can bank “stand-by” cash (rather than funds that are needed to keep them afloat and that are being spent in the wider economy), this has provided a valuable safety net.
Businesses that have needed the CBILS facilities to keep going, however are likely to have problems if their business is not back to normal after 12 months (i.e. when they have to start to service this additional CBILS debt), which is looking increasingly likely for many.
Will the UK Government extend the 12 month interest-free period under CBILS loans?
Bounce Back Loans
BBLs have also proved to be very popular, and a large amount of money has been lent under this simple scheme. While the “no questions asked” nature of the BBLS is attractive to small borrowers who can apply for up to £50,000 of loans, the number of lenders who are accredited is much lower than for CBILS (around 28 BBL lenders versus 110 CBILS lenders).
Some lenders are reluctant to participate in a scheme that has very few credit checks or balances and that allows their customers to become more indebted without having to prove they can afford to take on extra debt (adversely affecting the lender’s previous credit assessment of that borrower). They may also be wary of the potential of committing future management time in chasing the repayment of loans that the lender would not have made itself.
Lenders have to show that they have exhausted their usual recovery processes before being able to claim under the Government BBL guarantee. Stories in the press highlighting BBL fraud, and expectations of a high level of defaults, are also not encouraging for lenders.
Despite the popularity of the BBL scheme, businesses that don’t bank with a lender that is accredited for that scheme have struggled to access it. Changing banks or even opening new business accounts continues to be extremely difficult at the moment, as Banks divert their resource to looking after their existing customers. New businesses (as well as viable ones) that need access to credit risk being stifled by their inability to access business banking with the right bank.
Will the UK Government change the operation of the BBL scheme to make it more attractive to lenders, and available to more borrowers?
Perfect storm brewing
It is clear that the UK economy is now in the middle of a significant ongoing recession that it will take many months to emerge from. With the Chancellor’s furlough scheme drawing to a close and being replaced by a scheme that supports workers in businesses that are forced to close (but not those where the Government’s rules make it uneconomic to continue trading) significant job losses and redundancies are expected.
Fewer social interactions (made by fewer people with disposable income) means less money circulating in the UK’s predominantly service-based economy. Banks are already tightening their lending criteria as (obviously) businesses that are suffering in the stiff economic headwinds (and where the future prospects are uncertain) are difficult to lend to.
It seems clear that further Government support and encouragement is needed if lenders are to continue to keep what are fundamentally healthy businesses alive until the post-Covid world. The easiest thing might be to extend the application period for CBILS and BBLS and also the period under each scheme where the UK Government pays the interest under them, but whether the Treasury takes this course with respect to these schemes remains to be seen.