A pair of government schemes to help businesses of all sizes hit by the coronavirus outbreak are now open.
The Coronavirus Business Interruption Loan Scheme (CBILS) can provide state-backed loans of up to £5 million to small and medium-sized businesses who experience lost or deferred revenue disrupting their cashflow.
The Bank of England has also opened the Covid Corporate Financing Facility to help raise capital for ‘large firms who need it’.
The Treasury said the two schemes launching today open up a total of £330 billion in potential loans and guarantees, and that two more loan schemes are on the way.
The CBILS is available for ‘any viable business with a turnover of up to £45 million’, and will cover interest payments and any fees charged by lenders ‘for an initial period of up to twelve months’, the department said in a statement.
It will hand a government-backed guarantee to firms looking to get term loans, overdrafts, invoice finance, asset finance and other financial services.
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They will need to show their proposal would have been viable regardless of the pandemic and convince lenders it will help them make it out of short-to-medium term difficulties.
The borrower will still remain liable for the debt, according to the British Business Bank, which is running the scheme.
But the scheme will significantly boost firms’ chances of a positive credit decision where they might otherwise have been turned down in the face of an increasingly bleak economic outlook.
Lenders will have to pay to take part in the scheme but it is completely free for borrowers.
Some lenders have said they will go a step further by waiving arrangement fees and early repayment charges to small and medium firms borrowing under the scheme.
A spokesperson for the British Chamber of Commerce said: The [CBILS] is a crucial step in getting credit flowing to firms who urgently need it during this difficult period.
‘The inclusion of an overdraft facility in the scheme is particularly welcome to those who are facing an immediate and significant loss of cashflow.
However the scheme has come under fire for giving lenders the final say as to whether a loan application is viable.
Economic analysis firm Fideres said the scheme also exposes businesses to predatory lending practices and does nothing to stop unscrupulous businesses boosting shareholder dividends while laying off workers.
The Bank of England scheme for larger companies is open only to firms that ‘can demonstrate that they were in sound financial health prior to the impact of Coronavirus’, the Treasury added.
Chancellor Rishi Sunak has also announced a ‘Coronavirus Job Retention Scheme’ promising to cover an unprecedented 80 per cent of workers’ wages up to a cap of £2,500 a month.
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