Small businesses worried about “too risky” coronavirus loans

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Shaun Francis

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Shaun Francis

“I am 56 years old, why should I take out a loan with little income when the economy could take a long time to return? “

Shaun Francis is one of many small business owners concerned about the government’s coronavirus loan program.

He told the BBC that taking out a loan in his situation would be too risky.

His business has seen his income dry up and has therefore put on leave or paid leave four of his six employees, including his wife who is a director.

“We have kept two people, which is the right thing to do in an emergency,” said Francis, who runs an electrician business in Southampton, which takes care of nursing homes.

“But that means we have two wages to pay at a time when we have no money. “

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He says his wife as a director “receives very little from the government, around £ 700 a month, so there is far less money than usual to get into the household.”

With the future of his business uncertain, he says he would rather fall back on the company’s cash reserves rather than risk borrowing more money. But it only has enough to last three months.

“The Chancellor expects us to borrow money to keep our business afloat when there is no income to make the repayments. “

Chancellor Rishi Sunak redesigned the business interruption loan program (CBILS) for coronaviruses on Thursday as banks took advantage of the crisis.

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Changes to the Coronavirus Business Interruption Loan Program (CBILS):

  • Applications will not be limited to companies that have been refused a loan on commercial terms, thereby increasing the number of beneficiaries. However, the Treasury has not capped the interest rates that banks can apply.
  • Banks will not be allowed to ask business owners to guarantee loans with their own savings or property when they borrow up to £ 250,000.
  • Larger companies with turnover of up to £ 500m will also be eligible for further assistance – with state-supported loans up to £ 25m available for companies whose revenues range from £ 45 million to £ 500 million.

The government has committed to guarantee £ 330 billion in loans, but only £ 145 million has been lent so far.

Small businesses say they are struggling with the onerous eligibility criteria for government guaranteed loans, which are issued by High Street banks and other lenders.

They also complained that they were faced with interest rates of up to 30% and, before the rules changed, that they were asked to provide unreasonable personal guarantees.

It’s a familiar story for Gary Smith of Gloucester, who runs a 30-person IT service business.

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Small businesses in the UK

  • 16.6 million employed by them

  • 50%of turnover in the private sector

  • £ 2.2 trillionestimated annual turnover

Source: Federation of Small Businesses

He said he was “grateful for the government’s action,” but added, “What is frustrating is that the mechanism by which people try to access money leaves them out. “

Smith is concerned that despite recent changes to the plan, he will not be able to get the money quickly enough.

“Our bank tells us it will take six weeks to process our request.

“The challenge is up to the minute, things are happening every day that you can’t predict, so businesses need money as quickly as possible.

“For those who are closer to the wire, I dread thinking about how anxious they feel. “

“A balance must be found”

Daniel Davis has owned a family-owned business since 1908. It supplies braces across the UK and Ireland.

Some dental offices have closed due to social distancing.

He said his bank did not ask him for a personal guarantee, but told him to arrange a “leave” from a pre-existing loan with another provider before re-applying for government assistance through CBILS.

He adds that his accountant told him that they thought some banks were choosing not to offer these services after learning that they were no longer allowed to ask for personal guarantees.

Like many other small business owners, he feels concerned, “The dilemma is that there is a double threat. There is the threat of health which is the most urgent thing, but there is also a huge fear of losing everything anyway, other than my health because the commercial loans that I have already had are linked to my house. . “

“The most exasperating thing is that we are heading towards clearing much of the pre-existing loan within six months. “

For small businesses like Mr. Davis’s, urgent help is needed, although he understands that “the country does not have unlimited money.”

“There has to be a balance somewhere between a lockdown and the destruction of the British economy. “

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