The Treasury has welcomed a change in banking rules that could make it easier for small firms to secure crucial government loans, like CBILS, during the pandemic.
The European Commission has extended its state aid temporary framework to all micro and small companies, even if they were in “financial difficulty” on 31 December 2019.
The Treasury welcomed the new proposal which it said is an “important step in ensuring all viable businesses receive the help they need.”
Earlier this month, UK business groups wrote to economic secretary John Glen urging him to extend CBILS to businesses that failed to secure bailouts because they are loss-making.
Companies that have pre-tax losses or debts, either because they are fast-growing or have private equity backing, are classified as “undertakings in difficulty” by the EU.
However, the European Commission’s announcement means those smaller firms may now be able to receive government support after going months without. The Commission said it also “effectively increases the possibilities to support start-up companies”.
The Chancellor launched CBILS on 23 March to offer loans to firms with a turnover of up to £45m. And 80 per cent of the loans are guaranteed by the government.
State aid rules a “thorn in the side” of firms
However, the British Business Bank, which is administering the scheme on behalf of the government, required that eligibility for funding be based on EU state aid rules. The EU’s General Bloc Exemption Regulation sets out rules concerning an “undertakings in difficulty”, as well as outlining specific circumstances which may disqualify a company from aid.
When the loan scheme was first launched, the Treasury said the regulations had to be included within CBILS to comply with the European Commission’s Temporary Framework on State Aid.
Although the EU rules pre-date the pandemic, a spokesperson at the time said “it is impossible to take this condition out [of the CBILS framework”.
However the Treasury today said: “We’ve been actively engaging with the European Commission to ensure the UK’s coronavirus support schemes are accessible to as many firms as possible within the EU legal framework.”
The IoD’s head of Europe and trade policy, Allie Renison said: “It’s welcome to see some much-needed progress… The test has been a thorn in the side for a number of businesses at a difficult time.”
“Some firms may now look to apply again for finance, particularly as the cost of restarting operations looms,” Renison added.
Support “should be targeted at small businesses”
The Federation of Small Businesses (FSB) was also encouraged by the news, having previously called on the Commission to look at altering rules.
Policy and advocacy chairman Martin McTague said: “It’s good to see [the Commission] taking that recommendation on board – we hope the UK will do likewise.”
“It wouldn’t be fair for, say, a highly leveraged but ultimately viable small firm that took a knock in December as coronavirus started to spread to be locked out of access to finance schemes.”
“Such support should be targeted at the small businesses that need it most, and the Commission clearly recognises that fact,” he added.
Managing director of commercial finance at UK Finance Stephen Pegge, said: “This is a welcome change that could help more businesses access the support they need.”
“The fact that over one million businesses are receiving support through the coronavirus loan schemes is a credit to bank staff up and down the country who have worked tirelessly to get finance to those who need it.”
However, the number of applications approved by lenders so far remains low, lingering around the 50 per cent mark. Figures released today by the Treasury show £43bn has been borrowed so far. Of the 104,569 CBILS applications made, just 52,275 claims have been approved.