Step change needed to accelerate support to distressed firms

The UK Government has acted at pace to protect companies and jobs. So far around £6 billion in grants from local authorities have reached small businesses. And the Job Retention Scheme started strongly on Monday, safeguarding nearly three million jobs, latest figures show.

But today’s fresh weekly CBILS data, which shows more than £2.8 billion of lending provided to 16,000 firms so far, highlights the need to accelerate the delivery of existing support. The CBI’s Industrial Trends Survey (ITS) revealed business sentiment and investment plans in the manufacturing sector worsening at record rates (since 1958), highlighting the need to re-examine what more can be done to help companies still struggling (See Notes to Editors).

With lockdown renewed and the crisis continuing, no sector has been left unaffected. Four out of five manufacturers have seen a negative impact on their domestic output. And two-thirds of firms faced cash flow difficulties, the ITS found.

Pressure on manufacturers, transportation, distribution and other retail sector suppliers is unrelenting. These firms are ineligible for grants or relief from business rates. Smaller companies cannot access CBILs as they lack evidence to pass the affordability and viability criteria. For others, high fixed costs and tight margins mean existing loans and tax deferrals aren’t enough to survive, despite help with staff costs.

The CBI recommends two steps governments should take now to get faster support to distressed firms:

• First, accelerate the delivery of CBILs to smaller firms through three actions:

1. Develop, with lenders, a fast and simple route to loans under £25k for small businesses who may be completely new to borrowing, possibly backed by 100% government guarantee
2. Increase the government guarantee from 80% to 100% for CBILs loans up to £500k, which could improve speed of delivery though it is not a silver bullet. Allow lenders the option to provide a longer repayment schedule for loans up to this ceiling from 6 years to 10 years.
3. Streamline documentation to speed up eligibility and viability assessments, with standard templates as in Germany and Switzerland.

Second, provide all firms in England, Scotland and Wales with a three-month business rates suspension (as in Northern Ireland) and consider grant schemes to help smaller firms unable to access existing support.

Dame Carolyn Fairbairn, CBI Director-General, said:

“As the impact on businesses, livelihoods and the economy grows day by day, it’s vital to ensure help gets where it’s needed most. The current loan scheme is up, running and working for many. Now we need another big push to get money out the door faster.

“This is a race against time, and the only winning strategy is scale, speed and simplicity. Nothing should be left on the table.

“The Treasury, British Business Bank and lenders deserve huge credit for their speed and ambition so far. The millions of jobs they have saved today are vital livelihoods protected for the future.

“But with the lockdown extended there is no room to pause. The financial strain on some businesses cannot be underestimated.

“These recommendations are based on thousands of conversations with struggling firms of all sizes and aimed at helping those who have been left behind so far. A new wave of support is vital to local communities and our small and mid-sized businesses.

“Helping firms that have fallen through the cracks will protect jobs and livelihoods as the crisis unfolds and ensure a solid foundation to build on. It is far more cost effective to stop businesses collapsing now than create jobs in the future.

“The greater the number of companies helped to survive, the sooner the UK economy can restart and revive.”