There could be further changes to the Coronavirus Business Interruption Loan Scheme (CBILS) as more data emerges on the number of rejected applications, according to the head of the banking industry group, UK Finance.
Stephen Jones, chief executive of UK Finance, said: “I think as the data gets better we will continue to find where there are issues that are causing good businesses… to fail [the loan application process]”, adding: “I think there is the potential for further changes.”
Jones, former chief financial officer at Santander UK, said his “biggest concern” was for businesses that were not profitable in 2019 and so do not qualify for a coronavirus loan under EU state aid rules.
These businesses include many startups that were pre-profit before the pandemic, as well as firms with high levels of debt.
Defined by EU rules as “undertakings in difficulty”, they are prevented from receiving state support and so are deemed ineligible for assistance under the current structure of the CBIL scheme.
Appearing on The City View podcast, Jones said he had “a lot of sympathy” with calls to reform the regulations.
But he said “it’s up to the government to decide whether they want to go back and renegotiate the terms of the state aid approval that they have, and I don’t want to prejudge whether the EU would or would not grant those terms.”
Last month James Weber, a partner at Shearman and Sterling specialising in state aid law, told City A.M. the ‘undertakings in difficulty’ rules should never have been applied to the CBILS framework.
And he said that “if the scheme is not working as intended, the UK can readily amend it”.
He added: “Any reasonable amendment notified to the European Commission is very likely to be approved within one to two days.”
At the time, a Treasury spokesman insisted “it is impossible to take this condition out [of the CBILS framework]”.
Jones said that “as it currently stands those ‘undertakings in difficulty’ conditions remain, and businesses that fall foul of those cannot currently access CBILS”.
He said that from next week he’d start to get sight of “richer data” that would “allow us to get a better understanding of who’s getting through [the CBILS applications], who’s not getting through and, if they’re not getting through, why not.”
Jones said that many of the businesses falling foul of the state aid rules were high-growth and startup firms that were “viable but not profitable” – and that “we need to focus on those businesses very carefully.”
The government unveiled a £500m scheme to help with financing for startups hit by the pandemic, known as the Future Fund.
However, its terms have been widely criticised by the startup community, and Jones described it as “a very small and rather technical intervention,” adding: “we need more than just the Future Fund.”
Jones also expressed concern for the fate of businesses after government support is withdrawn.
“Businesses are not failing today,” he said, “when they will fail is when the job retention scheme is withdrawn and when their markets don’t reemerge as strongly as they were hoping”.
He said “businesses are in hibernation and they will really find out whether or not they’re going to survive when lockdown is relaxed”.
He predicted that “Q3 is absolutely crunch time,” adding: “how the job retention scheme is withdrawn will be absolutely critical”.
In addition to concerns over corporate Britain, Jones also said his industry was preparing for a surge in the number of individuals getting into financial difficulty.
He warned there is a very real prospect of “3m people getting into… financial difficulty in the third quarter as payment holidays are withdrawn and as the job retention scheme turns furloughed workers into potentially unemployed workers”.
“That’s 3m in three months…the [banking] sector normally deals with 1.2m people getting into financial difficulty in 12 months.”