More SMEs eligible for coronavirus loans under rule change
An abrupt U-turn in lending rules means SMEs banks previously rejected for coronavirus loans may now be able to get the vital cash they need to survive.
Small businesses with fewer than 50 staff and less than £9m in annual turnover will no longer be considered “undertakings in difficulty” under EU state aid rules amid the coronavirus crisis.
The law meant that any small companies classed as being in financial difficulty on 31 December 2019 would not be eligible for bank loans.
UK banks had relied on that legislation to determine which SMEs to grant much-needed coronavirus loans to during the pandemic.
But the British Business Bank (BBB) has now changed the CBILS scheme to ensure SMEs will not miss out on cash that could help them survive.
From 30 July “lenders may now be able to offer CBILS to businesses who had previously been unable to access CBILS”, the BBB said.
SMEs with a turnover of above £9m or more than 50 employees will still be subject to the state aid rules.
Those eligible under the temporary rule change must not be insolvent or have already received rescue or restructuring aid.
UK banks have been notoriously careful of lending to SMEs despite the government making billions of pounds available through indirect loans.
While more than 1m businesses have received a total of £31.7bn of bounce back loans of up to £50,000, CBILS lending data is much worse.
Around just half of coronavirus loans applications under CBILS have been approved so far, with lending totalling £11.9bn.
Unlike CBILS, bounce back loans are 100 per cent underwritten by the government. Only 80 per cent of CBILS lending is guaranteed by the government, leaving banks exposed to 20 per cent of the risk.
FSB: Banks must urge rejected SMEs to reapply
More than 50,000 SMEs have had their CBILS applications rejected by British lenders.
But City PM understands RBS does not believe the rule change will have a massive impact on its lending volumes.
However, the Federation of Small Businesses (FSB) has urged banks to tell SMEs rejected on EU state aid grounds to reapply.
“Those who have been turned down for a CBILS facility should be actively encouraged to apply again,” the FSB’s policy and advocacy chairman Martin McTague said.
“It’s good to see that these much-needed adjustments to state aid rules have fed through to the CBILS swiftly. A lot of ultimately successful firms are heavily geared or loss-making in their early years. It’s vital that these kinds of firms are not left stranded by banks at this incredibly difficult time. The BBB and accredited lenders now need to work closely to make customers aware of this change.”