Government’s Coronavirus Business Interruption Loan Scheme ‘not fit for purpose’

Ian Carrotte: Coronavirus Business Interruption Loan Scheme 'is gesture politics'

On the face of it the Government’s Coronavirus Business Interruption Loan Scheme announced by chancellor Rishi Sunak sounded like a lifeline but like so many official schemes the reality is different from the idea.

Speaking on BBC Radio 4’s Today programme Humphrey Cobbold of Pure Gym said his company didn’t qualify for a loan despite having 3,500 self-employed personal trainers, 265 sites and a turnover of £10m a week.

He said: "We're much too large for the new smaller companies' scheme, but for the larger company scheme you have to have an investment rating to apply.”

Scheme fails as firms must be viable

Ian Carrotte of ICSM Credit said the idea sounded good until you looked into the small print.

“It is supposed to help what they call viable businesses,” he said, “with a 12 month interest free loan for those small and medium sized firms with a high credit rating. Larger companies can apply for the Bank of England's new Covid Corporate Financing Facility but there it’s not that simple.”

He said the Government were guaranteeing cover to the lender and not guaranteeing the company who were applying for it. It means like all loans the borrower has to go through the usual due diligence, form filling, production of accounts, revenue forecasts and checks.

“The Government guarantees to cover the bank 80% of the loan if the company defaults,” he explained, “and of course the business still has to pay it back. If a company is already in debt due to the coronavirus crisis drying up cash flow would they want to take on another loan anyway?”

High Street's big names won't qualify for the loans

His scepticism is matched by others in the economy as most High Street chains won't qualify due to the viability clause meaning M&S, Boots, WH Smith and Pret a Manger wouldn’t quality.

City AM’s Michael Searles reported on the international consultancy and economic analysis firm Fideres’s views who said the loan scheme was ‘not fit for purpose.’

The London-based company, which specialises in competition economics, said the government’s strategy fails to meet three basic criteria: it is not simple, fast or fair.

Ian Carrotte said: “It’s gesture politics from the chancellor. There was a similar scheme under a different name a few years ago where the Government guaranteed up to 80% of the loan if the company defaulted. It had a similar name like the Enterprise Finance Guarantee.”

No choice but to shut up shop

He argued that the firms most in need of the loan such as micro businesses and SMEs don’t satisfy the bank’s requirements. Picking up on that the BBC reported on Raghu Kodakandala, the owner of the Leicester based Koban Restaurant Group that employs 120 staff.

Raghu Kodakandala said he was forced to shut up shop as business dried up overnight. He said: “"We had no option but to shut down our restaurants with heavy losses. As a small company I only have the resource to support them until the end of the month.

"I would like to apply for one of the government guaranteed loans, but when I approached some of the partner banks they didn't know how the scheme would be rolled out.”

Ian Carrotte said for many businesses the only option was to close down during the crisis and hope to restart when the all clear is given as most don’t have reserves to pay wages and overheads for an extended and indefinite period with no cash coming in.

“Keep a tight grip on credit control,” he said, “outstanding invoices should be chased down and members of ICSM Credit can use our free legal letters to put pressure on reluctant payers. It is likely that some companies are using the coronavirus crisis as an excuse not to pay.”

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