With the revised CBILS process underway, it is critical that the focus quite rightly remains on those that are unable to access CBILS via the existing providers, and on ensuring that the processes and eligibility criteria are straightforward and speedy.
According to figures released by City AM last night, there have been 309,000 CBILS applications, and only 2,022 approvals worth a combined value of 291.9m. This represents an approval rate of just 0.65%–down from 0.73% when the scheme launched–an average loan size of £144,362, and less than 10% of the scheme funds. We feel it is important to also know the number of rejections issued thus far and have asked UK Finance for this data.
As we all know, time is of the essence if we are to safeguard livelihoods and our wider economy, and it is clear wider measures must be introduced. We are fortunate that there are many systems already in place that can be deployed to create a holistic to the solution.
The APPG has had representations from multiple stakeholders in recent days–from CDFIs to challenger banks to alternative and fintech lenders–and it is clear there is a strong pool of resource capable of deploying much needed capital to the country. In order to expedite this, the APPG recommends the following:
1. Speed of turnaround. First and foremost, these loans must be expedited quickly. Rather than leaving the full decision to bank discretion, there should be a standard form that establishes ‘gateway eligibility criteria’ that will allow a quick turnaround process. This should take no more than 60 minutes and establish the core criteria
a. Were they in profit 2019
b. Were they up to date with payments
c. Have they used other grant support available
d. Have they completed a simple cash flow spreadsheet
2. The existing Bank Referral Scheme that is in place at banks should be used after any CBILS rejection. Referral to fully regulated entities only.
3. Capital and interest payment holidays on commercial loans and mortgages should be made available automatically. We are deeply concerned that as of yet we have not seen any lenders adopting this approach, and all are choosing instead to insist on interest payments with only the capital element being holidayed. This is absolutely no use to a business that has lost 90-100% of its revenue and offering terms that are unaffordable is a clear breach of FCA guidelines.
4. CBILS should be allowed and offered on overdrafts as well as loans. Many businesses only need a modest flexing of their current overdraft facilities whilst they ‘sit tight’ and weather the storm. We understand Santander is the only lender doing this just now.
5. The minimum loan size should be reduced from £25k to 5k. Many of the most vulnerable businesses have modest needs and/or do not qualify for a 25k loan. There are, however, some initiatives in the market that could fill the gap with appropriate bank, BBB and Treasury support. In particular:
a. Banks could lend directly to Non-Bank Lenders and Community Development Finance Institutions (CDFIs) that require further capital
b. Banks can contribute to the fund that has been created by Social Investment Business (SIB), with funding from funding from Big Society Capital and active support of the Impact Investment Institute https://bigsocietycapital.com/covid-19-information-social-investors/emergency-liquidity-facility-social-enterprises-and-charities/ in the form of an emergency liquidity facility. The above facility is designed specifically for social enterprises and charities, but a similar fund can be established to allow approved CDFIs to access capital that can flow to businesses in the local communities they serve. The fund can then be guaranteed by CBILS.
c. Consider the proposals put forward by the AABF to expedite lending of smaller tranches of funding
d. We recognise that multiple, smaller loans could become and administrative burden for the BBB and so would suggest either as per the proposal put forward by the AABF or, in the case of CDFIs, designating a bloc facility to CDFIs to cover micro-loans.
We believe that with the proposed interventions and measures above, we have the ability to quickly and effectively distribute much needed capital to struggling SMEs, charities and social enterprises.