Daily Coronavirus Webinar: access to finance

Our Daily Coronavirus Webinar on 1 April included our regular update from Dame Carolyn Fairbairn, as well as a special focus on how to access the latest support measures available for businesses. We discussed a wide range of topics, and answered questions from the audience. We heard from:

• James Harding, Co-founder and Editor, Tortoise Media
• Dame Carolyn Fairbairn, Director-General, CBI
• Rain Newton-Smith, Chief Economist, CBI
• Ben Davey, CEO, Barclays Ventures

Overview

• The CBI are pushing to help businesses remain open where possible. We are pushing for government to:
  • Continue to provide positive communication about staying open, while keeping the key worker list under review.
  • Building on the example of the Construction Leadership Council to provide more guidelines for other sectors – particularly where social distancing is tricky.
  • We’ve also been having discussions with our trade associations about a more formal ‘identifier’ or physical badge for employees who can work.
• Second, on access to finance:
  • Provide urgent support and reassurance to the stranded middle – that help is coming.
  • Expand existing guarantee schemes to support lending towards larger firms.
  • Introduce a guarantee model for mid-tier firms or a convertible loan product, where debt converts to an equity stake if not repaid, to provide critical support where needed.
• And then finally on our ‘business heroes’ work.
• We will also be posting calls to action on our online coronavirus hub.
• Some will be from government – like making ventilators for the NHS – but we’re also setting up a bulletin board for other businesses that need support, such as social care firms that need protective equipment.
• It’s all in the ‘how can we help’ part of coronavirus hub, so if you haven’t already, please take 5 minutes to look.
• Please send any offers of help, requests & gaps to fill, or inspiring stories to the new CBI’s new inbox: businessheroes@cbi.org.uk.

Key questions we answered

1. Could you give us a brief update on the economic impact of coronavirus, as we understand it so far?

• The worst of the disruption will be temporary. We will get through this. And as the peak of pandemic fades, and shops, factories, borders can reopen, we should see activity rebound.
• We may see a faster and deeper decline in output than during the global financial crisis. But the recovery should be swift and more likely to bring challenges of overheating – inflation and very strong growth unlike our slow and painful recovery from the global financial crisis, which has a very lasting effecting on living standards.
• What it means over for the world come the Autumn will depend on:
  • How quickly the search for a vaccine bears fruit and whether we see an echo infection as containment measures are relaxed.
  • How people react when restrictions are lifted do people rush to spend and travel when we’re free to do so or not.
  • How this changes our attitudes to travel, to family life and to global supply chains.
  • But fundamentally, it depends on how effective policy is in supporting businesses and households through this temporary crisis. So far, the UK the government to do whatever it takes to stop long-term damage.
• We have daily calls with BEIS, HMT, Bank of England (BoE) to discuss how this is hitting businesses, and how the design of government support packages can be improved.
• One way you can help is to participate in our regular economic surveys which help policymakers understand the severity and nature of the impact when official data is in short supply. We’ve included special questions on the impact of coronavirus –
• Please sign up to the coronavirus hub after this webinar for you to have your say.

2. Could you talk through some of the common problems and what support is available?

• The Coronavirus Business Interruption Loan Scheme (CBILS), is there to provide government-backed finance of loans from £1000 to £5m for SMEs. That’s businesses with a turnover of up to £45m.
• Though we mostly talk about loans, the scheme is pretty broad – with products including overdrafts, invoice finance, and asset finance facilities, and it’s available via your bank.
• What’s really important for business is that the scheme needs to be delivered on the ground with speed and simplicity. We know banks are doing all they can but there are teething problems. And we’d like to hear about them as well as where it’s working well.
• One of the early challenges has been around personal guarantees for the 20% that lenders are liable for and it’s great that the four major banks won’t ask for this for loans below £250,000.
• There are delays, since banks are coping with more than 30,000 enquiries in first few days. One business even told us they spent 5 hours on the phone.
• They are intended for companies whose business has been hit by the virus so they can’t get loans on commercial terms. The banks need to triage cases and prioritise.
• At the same time, the British Business Bank is working to fast-track accreditation to bring more providers on board – which is hugely positive. But the overall scheme does need to be simplified and we’re working on this.

3. We’ve also talked about concerns of the ‘stranded middle’ – is there any update about how this is being addressed?

• These companies are too big for CBIL and too small for the Bank’s Corporate Financing Facility (CCFF) for large corporates. There are at least 4,000 companies are in this group.
• It is our biggest concern at the moment, and these are companies in this stranded middle are really important, innovative companies that support thousands of jobs in regions around the UK – from Cumbria, to Plymouth, to Northern Ireland.
• A solution to this is now urgent and we need one this week. We’re in constant discussion with HMT on this. We need to:
  • Simplify and extend CBIL to more companies and make this system work urgently
  • We need to make the Bank’s scheme easier to access for non-investment grade companies
  • And for some companies in the middle, we need a combination of grants and potentially a convertible loan product, where debt converts to an equity stake if not repaid, to provide critical support where needed, and ensure the government shares in the return as these companies recover.

4. What resources are available for smaller firms?

• The grants for smaller firms are facilitated by local authorities and vary in the devolved nations too.
• In England, a range of grants will be available from April. These include:
  • A Small Business Grant Scheme – a £10,000 cash grant for the country’s 700,000 smallest businesses. Your local authority will write to you if you are eligible.
  • And a scheme specifically for retail, hospitality and leisure, with up to £25,000 cash grant per property. Again, your local authority will write to you if are eligible.
  • In the devolved nations, these grants will be distributed by the local authorities, but the eligibility criteria and size of grant are similar across the UK.
  • The Welsh government also recently announced a £500m fund to help businesses.

5. What is the Covid Corporate Financing Facility (CCFF) and how is it being rolled out?

• The CCFF is a facility through which the BoE will purchase commercial paper. This is unsecured short-term debt issued by large corporate firms.
• The BoE’s eligibility criteria are based on two tests:
  • The first is on how financially sound a business is. This is defined in terms of investment grade or equivalent.
  • The second test is whether the company in question makes a material contribution to the economic activity in the UK. That is a very broad test that can satisfied in different ways. E.g. this could relate to levels of employment, whether a firm is headquartered in the UK, or if it is serving many customers in the UK. It could also apply to internationally parented companies with large operations in the UK.

6. What other factors should companies interested in applying for this scheme consider?

• If your company already has a public investment grade and an existing CP programme, that is the easiest category of applicant to this scheme.
• There are various risk limits the BoE and Treasury will apply to this application, all embedded on the note the BoE have uploaded onto their website.
• For companies that do not have a public rating but are equivalent to an investment grade, and have a rating attributed to them internally by their bank, the BoE have varied their rules to allow applicants to class their rating as being equivalent to an investment grade. Provided they can supply the evidence, this would be counted as good evidence of eligibility to secure the CCFF scheme.
• This scheme, subject to the criteria outlined above, is also eligible to all non-financial companies.

7. Could you give us an update on the rollout of the CCFF scheme?

• The BoE are processing applications as we speak.
• Important to remember this is a recently released scheme so operationalising it is a huge task.
• In addition, it is being executed on behalf of the government, so there are additional eligibility hurdles that banks have to apply before implementing.

8. Could you give us an update on the rollout of the CBIL scheme?

• The CBIL scheme applies to companies which fall out of the normal lending criteria of the banks.
• We use two key tests to decide eligibility to the CBIL scheme:
  • Was this business viable before COVID-19?
  • Is that business now impacted by the effects of the crisis? If yes, you need to secure an agreement with the bank that enables you to trade through this period of disruption. It is a difficult judgement to make.

9. Are the banks implementing the CCFF on their own separate terms or is there a general standard of practice being applied?

• There is a common framework into which all applicants are fed into the BoE. The BoE website sets out what the costs and initial risk limits are via rating and all of that is fixed.