In April 2020, only 1 in 5 businesses that have formally applied for government-backed loans have been granted emergency funding during the COVID19 lockdown.
It could make for a cliche expectations vs reality meme, only that optimism and humour are also in short supply at the moment, as is cash for most small and medium manufacturing companies in the UK.
According to The Financial Times, a large number of small company owners across the UK are complaining about the time it takes to get answers from the ever-busy banks dealing with thousands of applications. The government-backed loan schemes are seemingly unapproachable.
The banking lobby group UK Finance released a couple of figures showing that British banks have nearly doubled the number of #business loans for customers impacted by the Covid19 by the week, but the government was unable to get the money out fast enough to support them.
So did the government just bodge it? As of April 15th, only £1.1bn-worth of bailout loans have been issued to small UK firms, that means 6,020 12-month interest-free loans. However, more than 300,000 firms have made informal inquiries regarding the CBILS (Coronavirus Business Interruption Loan Scheme), and it seems that banks were not responding fast enough to their informal inquiries.
Some acid critics might say that the banks don’t feel like lending to the businesses which are struggling in this time of uncertainty, even with the government backing these loans. It seems “it’s complicated” is the most preferable relationship status when it comes to banks and the UK government at the moment.
Enter the 100% guaranteed loan scheme
The government later released a 100% guaranteed loan scheme, advertised as higher affordable and more accessible. The BBLS, or the Bounce-Back Loan Scheme is capped at 25% of turnover, and comes with a standard interest rate, after an initial 12-month interest and payment-free period.
By comparison, the CBILS loan scheme grants access to larger loans, but it is more time-consuming and complex to apply for. Furthermore, it is only 85%-guaranteed by the government. Meanwhile, the “upgraded” BBLS offers fast tracked smaller scale finance. Companies cannot access both schemes, though.
The approval rates have increased since April
As of 16th June, the cumulative value of approved BBLS loan schemes has increased by 11% from the previous week, amassing to a total of £26.34bn.
Meanwhile, the cumulative value of approved facilities for the CBLS loan schemes is only at £10.11bn, with a 6% growth from previous week. Now, let’s give to Caesar what is Caesar's, and say that progress has been made. However, our optimist prediction is that half of the loan applications under these two schemes will still be rejected in the following weeks
The tension is building up in the manufacturing sector
The COVID-19 has placed a number of UK manufacturing firms on the brink of collapse. Aerospace, car making and steel sectors are especially asking for support, but as of 12th June, no specific policy has been announced by the UK government regarding these industries.
Manufacturing slowly continued to decline through May, and June still seems like a mined, uncharted territory for the UK manufacturers. There are many loopholes in the Coronavirus loan schemes which makes them unapproachable by manufacturers….
and these government-backed loan schemes remind us of ex-Top Gear Jeremy Clarkson speaking about the latest Bentley Continental GT’s suspension adjustability which, he said, was “as useful as having a snooze button on a smoke alarm”. We do not know much about the Bentley Continental GT, but what happens if the fire alarm sets off on the British manufacturing?