40,000 SMEs can’t access government-backed debt funding

More than 40,000 small- and medium-size enterprises (SMEs) are not suitable for the debt funding being offered by the government’s coronavirus business interruption loan scheme (CBILS).

According to a new analysis by business finance specialist Rangewell, the majority of CBILS applications that have been rejected are long-standing, credible entities which do not meet the requirements for a government-backed loan. As a result, Rangewell has warned that many of these companies will face “significant financial difficulties” and called on the government to extend its bailout facility – Project Birch – to help smaller businesses as well.

“The overall approval rate for the CBIL scheme remains at 50 per cent,” said Nic Conner, Rangewell’s research consultant.

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“In reality, this means that over 40,000 businesses have failed to receive the funding they needed – and needed quickly.

“Most of these businesses will be credible, long-standing businesses but not suitable for bank debt. Perhaps this is because of the sector they are in, their stage of development or previous credit issues.

“It is not realistic for the government to ask lenders to breach responsible lending guidelines; as that is what will cause the much-discussed surge in defaults and would be irresponsible.

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“Instead, Rangewell are calling on the government to rapidly replicate and roll-out the forthcoming equity support for larger SMEs that will be provided by Project Birch to smaller SMEs.

“Perhaps a ‘Project Spruce’ for smaller SMEs, with priority given to those who have failed to receive CBIL funds. In the majority of cases, such companies will have spent considerable time preparing cash flows and business plans – all of which could quickly be reviewed under the new ‘Project Spruce’ scheme and funds deployed rapidly.”

Rangewell’s CBILS analysis found that the average loan size is £194,000 – a sign that most borrowers are keen to remain below the £250,000 loan limit, after which personal guarantees kick in.

Meanwhile, the average Bounce Back Loan amount is approximately £30,000, while the approval rate for these loans stands at 80 per cent.

“Assuming every borrower is applying for the maximum 25 per cent of their turnover, the Bounce Back Loan Scheme is really supporting and helping the cohort of micro and small SMEs and both the lenders and Treasury should be commended for this,” added Conner.

“To get a scheme of this magnitude up and running so quickly and pumping over £20bn into supporting SMEs is no small feat.”

Read more: Bounce back loans dominate as lenders fund £27.5bn of coronavirus business support