Fury at banks’ ‘ridiculous CBILS hoops’ from Cambridgeshire Chambers of Commerce members
The Cambridge business community has responded with dismay and anger at the slow rate of progress for Coronavirus Business Interruption Loan Scheme (CBILS) loan applications from the UK banking sector.
The scheme provides financial support to smaller businesses (SMEs) across the UK that are seeing their cashflow disrupted as a result of the Covid-19 outbreak. It is a part of a wider package of government support for UK businesses and employees, which has been translated into very effective action by Cambridge City Council and South Cambs District Council for the distribution of emergency government grants for local SMEs.
The rapid turnaround for grants has not been mirrored by the banking sector when it comes to bank loans.
Tony Murdock, who founded TR Global Events and TR Destination Management last year following a successful role at Quy Mill Hotel & Spa, didn’t qualify for a grant as the start-up pays no business rates on rented premises. Mr Murdoch then approached his bank, HSBC, for a loan.
“The first application was for a relatively small amount,” says Mr Murdock, “for a 12-month period. They wrote back saying I should apply for an 18-month loan. The relationship manager then passed the case to someone else who I’d not heard of, who didn’t know the business. She asked a couple of questions. Within 48 hours I got an email with a flat rejection. My accountant phoned her and she told him that I’d be better off closing the business.
“There was no guidance on what to do next, no looking at other options - fortunately for us it’s not a desperate situation but the prediction is that 60 per cent of events suppliers will go bust.
“Fanfare announcements are all very well but it’s the practicality that matters.”
HSBC today (April 17) announced it “will reduce the minimum amount that sole traders and partnerships can borrow through CBILS from £25,001 to £10,000 to make it easier for smaller businesses to access liquidity”.
The bank “also intends to launch CLBILS early next week for existing customers with an annual turnover of more than £45million” - a situation many SMEs will find hard to empathise with.
Amanda Murphy, head of commercial banking, HSBC UK, said: “We are committed to supporting all UK businesses through these challenging times and will continue to launch new measures to alleviate some of the pressures that our customers are facing.”
Meanwhile audiologist Trevor Chapman is a director of Great Shelford-based Angli-Ear. He lives in Ely and the company banks with Santander. Angli-Ear has already received a grant from the council, but it also applied for a loan because it is upgrading to larger premises and wants to secure the new site.
“We received the £10k grant from South Cambs District Council,” Mr Chapman told the Cambridge Independent. “That was quick and easy. The problem with the CBILS scheme is that the government is not providing 100 per cent security on the loan.
“We are in the unique position of expanding into new premises, it’s seven times bigger than our current location. We’re self-funding the move and without the business interruption we could have survived for nine months with zero income but we can’t keep trading and expand.”
Mr Chapman contacted Santander on March 3 and was offered a £25k overdraft.
“We need significantly more,” Mr Chapman says. “I also said I wanted a CBILS loan, not an overdraft. I heard nothing until April 9 and called the business bank again, but I couldn’t transfer to the corporate bank so I had to email them. They replied in 30 minutes but needed more information which I provided, then they said they would get back to me in 72 hours, but that passed on Sunday (April 12).”
He is now in discussions with the corporate team at Santander, but the experience remains unpleasant and unresolved.
“It is an onerous process, with test forecasts, personal details, a personal loan profile is required, the hoops are many and ridiculous. With the offer of an overdraft there is a 1.5 per cent maintenance fee regardless of whether it is utilised or not and that doesn’t help minimise debt. If you look at the financial crisis in 2008 and the amounts required to bail out the banks - well, if you looked at that now, with what we know now, you’d say let them pay their own way.
“I’d rather our situation was a rare one but the ones that get their CBILS finance without a problem are the ones that are out of the ordinary and the fact is that this has been the main theme for companies across the UK.”
The third CBILS applicant approached, Cambridge Electric Transport, is, like Angli-Ear and TR Global events, a member of the Cambridgeshire Chambers of Commerce.
“We can’t get a grant because we don’t have any premises where we pay business rates,” says founder and CEO Sean Moroney. “So we took the CBILS route, we got a blank wall with Metro Bank which is our bank. I raised the issue with the Bank of England because I was so angry at the conditions being applied. Metro Banks said that in terms of EU regulations we cannot take out a loan that is more than double our share capital, and obviously with a start-up share capital is minimal. To do that really defeats the whole point of what the Chancellor is offering.”
“This is an unprecedented environment and we’re hugely sympathetic to businesses and individuals that are seeing massive challenges,” Metro Bank told the Cambridge Independent.
Metro Bank declined to state how many CBILS applications it has processed, nor their value. HSBC also declined to offer figures, saying: “We aren’t currently disclosing the CBILS figures.” The current understanding from UK Finance is that 6,020 applications have been approved from a total of 28,460 ‘formal applications’. Of the banks contacted, only Barclays has a scheme which allows non-account holders to apply through the bank.
A Barclays spokesperson said: “By offering free everyday banking and overdraft facilities to over 650,000 SMEs, we hope we will provide some temporary relief which will ease some of the financial stresses and strains businesses are under right now.
“The changes to the terms of the Coronavirus Business Interruption Loan Scheme announced by the Treasury recently will also be of comfort to millions across the UK and will enable us to more quickly help businesses access the support they need at this critical time.”
Lloyds Bank has also dispensed with personal guarantees. A spokesperson told the Cambridge Independent: “We will not seek personal guarantees for any new financing that we approve. This applies to both our normal banking lending and customers who are eligible for the CBILS scheme.”
This was not, however, enough to placate John Bridge, the chief executive of Cambridgeshire Chambers of Commerce.
“CBILS is not working,” Mr Bridge told this newspaper. “The challenge is the banks are not going to change their tune about the guarantee for the 20 per of the loans, and a full risk assessment takes time. Our members are being asked for personal guarantees and they’re not going to do it and they don’t understand the rhetoric from the banks. The banks are not interested in making the scheme work because they can’t make any money from it and they don’t want to take any risks on it.
“British Business Banks have taken charge of the system and it appears the banks themselves have to get their money from British Business Bank which is a whole new rigmarole. The documents issued by HMRC confirm the money is coming from this portal. The big challenge is that, like all bureaucrats, they’re focused on process and making sure people don’t have access to cash they shouldn’t have and that holds it all up.
“The crucial thing is that the banks lend money to make a profit and if the scheme doesn’t fit in with their business model then they will present a good model externally but internally I’m not so sure. Many of our members can’t even get through to their business manager for funding to get them through to the end of the month.”
The banks know the situation is serious. Since starting to research this article, an HSBC UK spokesperson says it has dispensed with the need for personal guarantees on the 20 per cent of the loans (up to £250,000) not guaranteed by the government. The spokesperson said: “HSBC UK will reduce the minimum amount that sole traders and partnerships can borrow through CBILS from £25,001 to £10,000 to make it easier for smaller businesses to access liquidity.
“To support our customers in these unprecedented times and to make it easier for our customers to access liquidity, we are not asking for personal guarantees on CBILs for loans up to £250,000. For loans greater than £250,000, we will review security requirements on an individual basis. If a personal guarantee is deemed appropriate, it will be only in an amount up to a maximum of 10 per cent of the loan amount we agree with them.”
Commenting on the situation, Sophie Burton-Jones at Mills & Reeve said: “Rishi Sunak has already said that the government will not be able to save all businesses, so while it seems short-sighted to ignore the smaller, high-growth businesses that Cambridge is so well known for, it may be that the government’s focus is currently on saving larger more traditional businesses with bigger workforces which would make bigger headlines if they were allowed to fail.”
A further update on progress for Cambridge’s crucial business community can be expected in due course.