The Business Interruption Loan Scheme - The Cracks Are Already Showing

We have been seeing more and more reports highlighting concerns about the Business Interruption Loan Scheme.

Initially hailed as one of the largest rescue packages from any government, it seems as though very few are actually able to get their hands on some of the £330bn set aside for funding struggling businesses and there are growing concerns it is too complicated to stave off a wave of insolvencies.

Just three days after the scheme’s announcement, Bloomberg reported that the scheme was too complicated “This program is going to be too slow, too cumbersome and too complicated” said Mark Phillips QC, South Square Chambers

As only 80% of the loan is backed by the government, banks are still running the usual credit checks which is taking time businesses don’t have. Whilst the scheme says that lenders cannot ask borrowers to put up their main residence as collateral, they are asking for personal guarantees, it is therefore likely that they will get the house in the end, should the company fail. This shifts the risk away from the bank and the government and onto the director when they are only seeking loans because of emergency measure introduced by the government.

Some businesses are reporting that they are being offered loans outside of the scheme at much higher interest rates with security over the director’s residence after failing to qualify for the scheme. As smaller businesses are unable to apply for the scheme if they have been offered a loan on commercial terms, banks are being accused of taking advantage of the current crisis.

Reports of non-high street lenders charging up to 30% interest are seen as taking advantage of the situation. Whilst the first 12 months of loan interest is met by the government, these loans can last up to 10 years and it will be the business that will need to finance this after the initial 12 months is up.

Yesterday the BBC reported that nearly a fifth of small and medium sized business are unlikely to get the cash they need to survive for the next four weeks as they are unable to get access to the “unprecedented” government support.

Kirsty McGregor, founder of the Corporate Finance Network, told the BBC: "Small and medium-sized businesses employing less than 250 people employ most of the workforce - 23 million people. We could lose up to a million of them in the next month or so. And it will be irreversible which will be catastrophic for the UK economy."

From being unable to get through to the bank to slow processing times when you do, strict criteria for lending and the potential of losing your home in the midst of complete worldwide economic uncertainty, would you want to use the Business Interruption Loan Scheme?

A spokesman for the Treasury said: "The chancellor has been clear that banks should support small and medium-sized businesses during these difficult times.”

But this clearly isn’t working and it looks as though the insolvency industry is going to get busier the longer lockdown goes on for with the economic impact being catastrophic if the government doesn't step in.