Rishi Sunak has moved swiftly to try to counter the economic threat posed by the coronavirus pandemic by unleashing a £330bn package of bailout loans alongside an extraordinary offer of wage subsidies.
But the speed of the chancellor’s actions has created its own problems, with banks, regulators and Treasury officials scrambling to find ways of getting the money to the companies that need it most.
For many employers, the crisis has triggered a race against collapse, with wage bills to be paid this month even as their income has been wiped out after the government enforced a lockdown across the UK. Here, the Financial Times looks at how businesses can best access the right funds that they need to survive.
I am a small-business owner — how can I find the right loan for me?
The Coronavirus Business Interruption Loan Scheme (CBILS) offers financial support for small businesses with loans of up to £5m. As late as Monday morning last week, banks were racing to sign off the terms of the loan scheme that was due to go live just hours later. By Wednesday, the first facility was drawn down, with more than 4,000 applications in the pipeline as of Thursday.
Companies with revenues of less than £45m can apply, through more than 40 lenders approved to provide finance. The debt can be provided as a normal term loan, an overdraft or invoice finance or asset finance, and is offered interest and fee free. The full details are available here.
The government-backed guarantee for the loan repayments is designed to encourage more lending, rather than bail out the borrower, who remains fully liable for the debt.
Will business owners need to provide a personal guarantee for the loans?
The CBILS scheme was criticised for allowing banks to ask potential borrowers to provide personal guarantees. This means that directors could be at risk of losing their savings and property (although not, under the terms, their primary residence) if their business fails.
Most large banks have now waived personal guarantees as security for lending less than £250,000, but any borrowing of more than that still needs security from the applicant at a time when businesses are particularly precarious.
The implementation has also not been flawless. Some borrowers have complained that they have had no replies from banks for several days, or have been forced to wait for hours to talk to someone to organise the loan. Banks say they are still working on meeting demand.
Are larger businesses also supported by the government?
The Covid Corporate Financing Facility (CCFF) — a new lending scheme from the Bank of England — is designed to help support liquidity among larger groups.
If eligible, companies will be able to sell commercial paper to the Bank of England through their bank, which will carry terms comparable to those in markets before the spread of Covid-19.
The government-backed commercial paper is a type of unsecured, short-term debt that can be held for up to 12 months. Companies do not need to have issued commercial paper before.
Can any business apply?
The CCFF scheme ran into criticism because companies needed to be investment grade, as defined by a rating agency. According to analysis by Fitch, the rating agency, slightly more than 100 companies in the UK have such a rating.
The government on Thursday sought to ensure the scheme was available for midsized companies by allowing lending banks to also judge a company’s credit worthiness. Although the government says most employers will be covered by the range of bailout measures, many companies will still not meet the criteria for the CCFF scheme. This is judged by the Bank of England on criteria set by the Treasury.
The decision will come down to whether companies were in sound financial health at the start of March. If groups want to check eligibility, they need to first talk to their banks, and then apply here.
So far, no company has publicly said it has used the facility, with an update on the level of take-up due on Thursday. But companies struggling before the coronavirus hit the UK are unlikely to be thrown a lifeline by the new lending schemes.
Can the government help with wages?
For many businesses, this could be the government’s most meaningful intervention. HMRC has promised to reimburse 80 per cent of furloughed workers’ wage costs, up to £2,500 a month for each employee.
The government will also cover furloughed workers’ National Insurance and pension contributions normally paid by employers. Those made redundant after 28 February can also be re-employed and placed on furlough.
Employers will still be required to make payroll payments. The money will be recovered through a grant from HMRC paid into the company’s bank account.
The scheme is one of the most ambitious, targeted at companies struggling to keep on hundreds of thousands of workers in restaurants, bars and shops that have been forced to close following the government’s lockdown last week.
When does the wages scheme start and will it apply to all employees?
The government has not given an exact start date, but expects the scheme to be available by the end of April.
Some companies fear that the scheme might not be ready until later, which means they will have to shoulder at least two months’ worth of wages with little income of their own. Processing the backlog of wages could also take time, say advisers.
Any UK employer can apply and furloughed employees can be on flexible or zero-hour contracts, or on parental leave. The government said that it expected the scheme would not be used by many public sector organisations — although at this stage there is a lack of clarity over what organisations this might cover. The government nevertheless says such employers should continue to use their public funding for staff costs and not furlough them where possible.
But they need to be off work — if they are working part time or reduced hours the funds will not apply. The latest details are here.
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