Daily Coronavirus Webinar: access to finance

Apologies for any sound issues during this broadcast. 

Our Daily Coronavirus Webinar on 6 April included our regular update from Dame Carolyn Fairbairn, as well as a special focus on how to access the latest support measures for business. 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
• Stephen Jones, CEO, UK Finance

Overview:

• On the CBIL scheme, we have seen welcome moves from the Chancellor on personal guarantees, securing arrangements, and improvement operations to unlock cash.
• The goal is to improve the speed and operational delivery of the scheme on the ground.
• We have been speaking to bank CEOs and learned they are expecting an uptick in requests and are moving more frontline staff to help and bringing back in retired staff.
• The CBI will be keeping a watchful eye to ensure help gets where it is needed – your feedback is invaluable.
• We have also seen real progress on the ‘stranded middle’ with a new loan scheme – awaiting full details but important reassurance that there is a plan.
• Where gaps remain, we will continue to work closely with the financial services industry, HMT, British Business Bank (BBB) and BoE.
• On the Job Retention Scheme – we saw updated guidance from HMRC published on Saturday, responding to questions we fed in. They confirmed eligibility for different types of employment relationships – including company directors, salaried members of limited liability partnerships, and agency workers.
• On this question of having second job – we heard confirmation that you can be put on furlough by one employer and continue to work for another, if your contract allows
• Finally, you may have seen the CBI making two public interventions. Firstly, calling for clarity and consistency across the UK on the issue of whether firms should remain open or close.
• The CBI produced a joint letter with the Trades Union Congress and the Health and Safety Executive calling on employers to ensure safe working conditions during the coronavirus outbreak.

Key questions we answered:

1. What are the CBI’s top priorities over the next few days? (Answered by Carolyn Fairbairn)

• Continuing to work on the implementation of the Government’s economic support schemes, including the speed and simplicity of getting the money available to businesses.
• The CBI will participate on a call today with other business organisations and Alok Sharma to report back, and also use our daily call with trade associations that Number 10 also joins.
• The CBI are also prioritising two calls to action:
  • A campaign by business to support volunteering.
  • We are all indebted to front-line fighting coronavirus – not just the NHS, but also charities like St John Ambulance, The British Red Cross and the Royal Voluntary Service who rely on whose thousands of volunteers, many of whom are our employees).
  • So, this week we’ll be calling on all business leaders wherever possible to act flexibly to release employees to volunteer on the front line and welcome the government’s initiative to support Emergency Volunteering Leave.
  • Secondly, we will also be making a particular call to action on making Personal Protective Equipment, working with unions.

2. Could you give us an update on the CBILs scheme on how many banks are engaged, how many loans have been approved and how much money is beginning to move to businesses? (Answered by Stephen Jones)

• The changes made to CBIL on Thursday night and Friday morning were necessary to address viable businesses that will be viable after the coronavirus has subsided.
• Under the original terms of the scheme, businesses were required to borrow on standalone commercial terms, including standalone commercial security requirements and were not eligible for CBIL.
• The changes also clarified that personal guarantees were not required for loans up to £250k.
• For loans above £250k, they will only be required in the context of the bank’s 20% share of any net loss following a default.
• We have made it clear to businesses that were viable on the 31^st December 2019 and who have the prospects of being able to take on and repay debt following this crisis, that they will be eligible for interest-free credit without fees for the first 12 months under this scheme.
• There are businesses who will not be eligible. For example, high-growth businesses that were not immediately profitable on the 31^st December 2019 and businesses that were marginally profitable but who’s debt service is likely to be a problem following the ending of this crisis. However, there is an equity gap for these businesses.
• Regarding the operationalisation of the scheme, it is a very complex scheme which has been sandwiched onto a platform which was not built for scale with many of the banks having to re-engineer their processes at the same time.
• We need to re-engineer the process of booking with the BBB. This is because every loan has to be booked with the BBB and it risks becoming overwhelmed by the volume of businesses contacting them.
• We have a call with the BBB to see How we can simplify processes to ensure that SMEs that urgently need the cash have the best prospect to so and are not caught in a log jam.
• There is also an issue for the businesses who, in the first two weeks of the scheme, had to borrow on commercial terms because they were not eligible under the original CBIL terms. They will be re-booked on CBIL terms with interest-free credit.
• However, if they can survive the coming weeks, could they please refrain from coming forward as that would help the banks prioritise those that need it the most and avoid the initial rush of enquiries.

3. Regarding the medium-sized companies, aka, ‘the stranded middle’, are they also eligible for the 12 months interest-free element of the scheme? (Answered by Stephen Jones)

• We cannot tell you for sure what the eligibility criteria as they are being finalised.
• It is important to note the details of the scheme were only available to the banks in skeleton form on Thursday night, therefore the anticipation is that this scheme will be up and running within a couple of weeks.
• There is a lot of detail to work through and we want to avoid having to re-launch the scheme as CBILs 1 needed to be re-launched previously.
• The banks are the takers of the terms, they are not the determinants. This is a government scheme and they will decide who is and is not eligible.
• Regarding whether companies with a turnover of between £45 - £500 million have access to the loan, up to £25 million, with 12 months interest-free, the answer is no.
• The current intention of the government is that the finance provided under this scheme will be charged.
• However, the precise nature of how much security is taken, the basis on which charging will happen and is monitored is not yet clarified.

4. On CBILs, if you are not a profitable company, e.g. many start-ups which may not have yet hit profitability, or companies that had a bad year in 2019 but a better year in previous years, what is the treatment of those companies that are then not eligible for the interest-free loan? (Answered by Stephen Jones)

• Unfortunately, if these companies are loss-making, they will not be eligible.
• This is as much to do with European Union State Aid rules, to which the UK is still subject to. This requires that businesses can only benefit from the scheme if they are in difficulty because of COVID-19. The determination of what constitutes ‘difficulty’ does not allow for much flexibility by the banks.
• The question for these businesses becomes whether they have enough collateral to borrow from their banks on commercial terms, or whether they need equity.
• The banks are not a source of equity and are not allowed to invest equity. In fact, banks are treated punitively if they do invest in equity.

5. On the larger CBIL scheme, i.e. for companies with a turnover of between £45 – £500 million, does that apply to global turnover or UK-only turnover? (Answered by Stephen Jones)

• This scheme was designed to protect British businesses and jobs. However, this question is to be determined.

6. Last week, many businesses felt there was a disconnect between the public messages on access to finance from the Treasury, and what their experiences were on the ground. On businesses reaching out to the banks, many firms reported being stuck on hold or told the banks were not taking on new customers. What are the obstacles the banks are facing in rolling this out to scale? (Answered by Stephen Jones)

• The original terms of the CBIL scheme were given to the banks by the Government at 3am on the night of Sunday the 23^rd March with the requirement for the scheme to be up and running on Monday 24^th As a result, we are playing catch-up.
• Every customer-facing organisation is facing unprecedented pressure on workforce capability due to self-isolation, sickness and care responsibilities but banks recognise this scheme needs to be mobilised at scale, particularly to reach millions of SMEs.
• The way to do this quickly is through automation and straight-through processing.
• One teething issue is the interface between banks and the British Business Bank.
• For example, the removal of the personal guarantees was done in negotiation between individual banks and the BBB, as opposed to a top-down decree.
• 40 lenders are currently accredited by the BBB. Accreditation for new lenders is crucial now because there will be no other form of SME-lending other than CBILs.
• We need an automatic accreditation process that identifies when a company has satisfied basic eligibility criteria (which can be proven and self-certified).
• To auto-underwrite for the smallest of SME businesses, you need an STA waver to do that as quickly as possible. Otherwise the FCA requires individual affordability assessments for micro-SMEs.

7. On the terms for the CBILs scheme one business has written to say they made a loss last year because they invested in growth and only started to see results after the end of the business year (August). Does that exclude them from CBILs? (Answered by Stephen Jones)

• This is an individual under-writing decision for the bank under the eligibility criteria of the scheme. Under the EU requirement, the assessment viability is made as of the 31^st December 2019.
• Therefore, it should be within the spirit and the letter of the scheme for that business if it was profitable on a running basis by December 2019, to be eligible.

• Carolyn Fairbairn raised one final call to action. We have a massive shortage across the UK of protective equipment. We want to make a call to action on PPE equipment. We will increasingly need that equipment in our businesses which will be key to the revival process as we gradually re-open the economy.
• If your business is able to make aprons, gowns, masks or sanitisers. Please get in touch with the CBI over the next 48 hours.