The government is expanding its own Covid-19 rescue loan strategy to pay modest companies on the edge of meltdown, a movement that Labour warned would come too late for several troubled companies.
With less than a week prior to the furlough scheme covering 9 million workers is cut down, plunging more companies into debt, the Treasury said it might use a shift in EU state aid rules to permit firms previously locked from their coronavirus company disruption loan strategy (CBILS) to gain access government funds.
The financial secretary to the Treasury, John Glen, stated he’d write to significant creditors telling them of their change, which can make more small companies – especially the ones that have racked up substantial losses and debts – qualified for loans up to £5m. From the end of June, more than £11bn was lent to over 50,000 companies under CBILS.
Formerly, companies classed as “undertakings in difficulty” were not able to get CBILS under EU state aid rules, which the UK was needed to adhere to throughout the Brexit transition interval.
“From today, businesses in this category and which have fewer than 50 employees and a turnover of less than £9m can apply to CBILS,” he explained.
Ed Miliband, Labour’s shadow company, electricity and industrial plan secretary, stated: “Any aid in breaking down the barriers to loans is welcome, however that has taken much too long, with too many companies left in the cold. Time will tell if that sorts out the growing backlog of CBILS loans.
“There also remain serious, unaddressed problems of loans for larger firms, CBILS, and growing evidence of firms being shut out of bounce-back loans unless they are an existing customer of a major high street bank. Every week that passes with these problems being allowed to continue puts at risk the future of businesses, the livelihoods of workers and the strength of our economy.”
The business lobby group, the CBI, said expanding the qualification rules for its CBILS plot was “an important step that will help more businesses get the critical support they need”.
However, some experts cautioned that the growth of CBILS to poorer companies could add tens of thousands of pounds into the rescue invoice and prop up companies which needs to be permitted to go bust. The government provides all CBILS loans having an 80% assurance, meaning banks will probably be left to shoulder 20% of possible losses.
The popular bounce-back loan strategy, under which £29.5bn was dispersed to 967,000 companies by 28 June, supplies a 100% government guarantee. The Office for Budget Responsibility, the government’s independent economic forecaster, has predicted default prices of 10% to get CBILS loans and 40% for bounce-back loans.
Jagjit Chadha, director of the National Institute of Economic & Social Research thinktank, said: “While providing a more straightforward approvals procedure is useful and providing support to companies which were in issue in December 2019 may support a few in their recovery throughout the pandemic, there’s a danger that elderly companies which should otherwise go out of business may continue to exchange even higher rates of debt, and this may return future investment and job development.
“It would be just as important, perhaps even more so, to consider boosting lending for new businesses and startups.”
Glen stated it had taken weeks of calling from the authorities and business groups to get a relaxation of rules at the European Temporary Condition Assistance Framework “to make sure that small businesses who are not insolvent or receiving rescue aid can benefit”. He explained: “Our loan schemes have been a key part in supporting businesses, enabling them to bounce back as we kick-start the economy.”
The small business minister, Paul Scully, stated: “Small businesses will play a vital role as we seek to recover our way of life and get the economy moving again, and it is essential we continue to support them through this difficult period.”