Changes to Coronavirus Business Interruption Loan Scheme 'could help contractors'

Limited company contractors are checking if the Coronavirus Business Interruption Loan Scheme is now of help, following small business-friendly changes made by the chancellor.

No longer are loans via the scheme only open to traders refused commercial funding, meaning all “viable” firms hit by the pandemic are now eligible, Rishi Sunak said on Friday.

The chancellor also banned the scheme’s 40 accredited lenders (including the major banks), from asking limited company directors to give a personal guarantee for loans under £250,000.

'Scheme changes will help some PSCs'

And similarly based on “feedback,” Mr Sunak removed the need for scheme lenders to offer one of their standard products first, meaning small firms can now apply directly for a ‘CBIL.’

“Opening up the Business Interruption Loan Scheme will help some limited company contractors”, confirms the Association of Independent Professionals and the Self-Employed.

The accessibility boost is largely thanks to lifting the requirement that a loan on commercial terms had to have been rejected already, says chartered accountant Rayanne Armand.

'Simply shocking'

But pointing to officials admitting that sign-ups since March 23rd only total “nearly 1,000,” she hinted the change is vital if Mr Sunak’s scheme is going to help -- and avoid being a flop.

“Fewer than 1,000 of the 130,000 loan applications have been approved for the CBIL,” said Armand, managing director of Root2growth.

“How is that at all helpful to businesses? Less than 1,000 [approved applicants] in the whole of the UK is simply shocking.”

'Not clear'

Another accounting expert, Aadil Masood, a manager at inTAX questioned whether enterprise even wants the scheme, let alone a version 2.0 of it.

“The changes to the business interruption loan scheme will mean more businesses are able to access financial support during the lockdown.

“The loans may now be available to more businesses but what's not clear is whether firms want them?!”

'45 times'

Speaking after the scheme was updated, RBS told Radio 4’s Today programme that inquiries to the bank about the loans increased “by 45 times” in a week, indicating demand is there.

However, when firms did apply, banks demanded companies deplete their existing cash first; tried to sell them other products, or tagged on interest of up to 12%, say members of APSCo.

Before Friday’s changes to the scheme, under which government provides an 80% guarantee to lenders of each loan, another told the Association of Professional Staffing Companies:

“I spoke to my bank and they indicated they would still require a director’s personal guarantee, even though it is a government-backed security.”

'Bridge the gap'

Now that lenders have been banned from asking for such personal guarantees (under £250k, but rising to a 20% guarantee of the loan’s outstanding value above £250k) APSCo is “very pleased”.

Although IPSE has likewise lent its support to the changes, the contractor group’s new chief executive Derek Cribb has characterised the scheme as merely serving to “bridge the gap”.

His welcome being guarded is partly as the group fears many people working for themselves are “falling through the cracks” of the government support during the COVID-19 pandemic.

'Only just staying afloat'

And there is the nature of the scheme itself. “Many [limited company directors] just do not want loans because they fear falling into spiralling debt,” said IPSE’s Andy Chamberlain.

“This is a particular worry because no-one yet knows how long the disruption to businesses will last. We urge the government to consider the plight of limited company directors and develop bespoke support measures for them”.

Jonathan Geldart, director-general of the Institute of Directors said: “It’s little wonder directors have balked at the prospect of hefty personal guarantees.”

“In many cases, banks are working around the clock to help the government’s support hit the front lines…[but] it’s important now that lenders respond to the changes quickly and get the money to companies, particularly small ones, who are only just staying afloat.”