As of the 4th April, £140m has been lent via the CBIL scheme (1). This equates to less than 0.04% of the available guarantee, to a little over 1,000 of the high street’s 4 million SME accounts. Progress indeed, but there is a long way to go if this is to make a difference to the UK economy. Branch closures, Covid-led sick leave and closed contact centres put pressure on a human underwriting process. To put this in perspective Capitalise has 250 completed CBIL applications in process, packaged by our accountants.
HMT has made several key reforms in order to improve the transmission mechanism for CIBL funds, it will help, but it will not solve the scale of the problem.
Notably removing the banks’ requirement to assess if the SME was eligible for a non-CIBL bank product, specifically relating to the amount of security available. The bureaucracy of identifying security value has and will continue to be challenging, so this is a very welcome change and oils the supply side.
Secondly, the treatment of personal guarantees, removed for all lending under £250k, and capped at 20% for lending over £250k will in these challenging times, give businesses more comfort to take on debt as a solution. Directors are rightly concerned about taking on borrowing when they don't know how quickly they will become viable again. So this is a demand-side solution, helping ease the director’s minds.
Finally, there is much talk about helping the S of the SMEs, but the increase in loan size to £25m is hugely important for more mature businesses who have a significant role to play in employment.
The reality is that businesses need the funds in weeks, not months, so these changes despite a move in the right direction are unlikely to unleash the tsunami of funding support so desperately needed. Many businesses will fail.
The time to receive funds is simply too slow
Newly accredited lenders have to include the fintech community such as Funding Circle, Esme and iwoca. Traditional lenders have a vital role to play, but their human underwriting processes will not speed up the time to funds that fintechs can achieve
The fintech challenge is the personal guarantee - the bedrock of their underwriting, and their cost of capital. The CBILS programme is a guarantee not a line of credit for the lenders, hence their cost of capital will likely be higher in the months ahead, meaning there is likely conflict with the BBB program.
For the sake of UK SME, I hope to see them accredited soon so that fintech lenders and channels like Capitalise can help drive the solution.
Take a closer look at how the CBILS works and how you can apply through the Capitalise platform.
1 - Simon Jack, BBC.