By the end of May 2020, the approval rate on the main government-supported
Coronavirus loan schemes contrasted sharply.
The Bounce Back Loans Scheme seemed to doing well. It is aimed at smaller
businesses and is currently provided by a panel of 20 Lenders. You can borrow
from £2,000, up to 25% of your turnover. The maximum you can borrow is
£50,000. The average size of loan is £30,000, and the approval rate is 80%.
Compare that with the Coronavirus Business Interruption Loan Scheme. It is
aimed at larger companies, with a turnover up to £45,000,000, and is currently
provided by a panel of 84 Lenders. You can borrow up to £5,000,000. The
average loan size since it began is £194,000. There is some concern that
applicants are deliberately borrowing less than £250,000, because the Lenders
can ask for Personal Guarantees from Directors when it exceeds £250,000. This
risk could be mitigated by obtaining Personal Guarantee Insurance, but there is
a much bigger concern: the approval rate is only 50%.
Let`s say applications are coming from businesses with employees between 10
and 50 employees. It might not correlate exactly, but it`s more likely to be this
segment of British business than businesses with 1 to 9 employees.
According to 2019 statistics from the Department of British Energy & Industrial
Strategy, this sector consists of over 200,000 businesses. They have over 4
million employees, and generate over £ 6 billion in turnover.
One out of two businesses of this type cannot obtain funding, even with a
government guarantee of 80% of the loan standing behind the deal (which is
given to the Lender – the debt is still payable in full by the borrower).
Isn`t this a massive red light for the government?
As for the companies themselves, should it be made clearer that there is an
alternative for them? The best possible solution should be to find a commercial
finance broker. HCP has access to over 300 Funders, for example – and most
other brokers will have access to many more than 84.
Is it time for the government to give much greater prominence to the role of
brokers in the UK economy?