Business Impact of Borrowing/Debt through CBILS and BBL

With the onset of COVID-19 the Government strategically put in place several measures to alleviate the pressures on SME’s to try to safeguard businesses from imminent collapse. 

These measures were Government backed lending, the first to be released was the Coronavirus Business Interruption Loan (CBILS) Scheme, this was aimed at SME’s with an annual turnover up to £45million. The Government guaranteed 80% of the finance to the lender and pays the interest and fees for the first 12 months.

The second wave of funding, the Bounce Back Loan (BBL) was aimed at smaller businesses with a minimum and maximum lending criterion between £2,000 and £50,000. The Government guaranteed 100% of the finance to the lender and pays the interest and fees for the first 12 months.

The borrowing on the CBILS was initially much more difficult and therefore the uptake although high was slightly less worrying than the BBL, the overall success rate at the time of writing this document for the CBILS was only 50% whereas the BBL was 79.86%. The CBILS was hampered by EU state aid rules relating to ‘undertakings in difficulty’ being followed to the letter of the law by UK lenders, whereas the BBL was almost what I can only describe as a “free for all lending” as in the first day alone UK Banks reported over 100,000 applications.

According to Government statistics over 50% of the BBL’s are expected to become unrecoverable Bad Debts, and at this time the UK Debt has now exceeded the size of the economy for the first time in more than 50 years. The reality is that most of the loans issued have gone to businesses who usually would not even be offered this level of facility and therefore the rising UK Debt will continue to grow into a more significant problem.

Whilst the UK Government responded quickly to the ensuing crisis the current economic forecasts for recovery look very bleak, as businesses not only have to service pre-existing debt but now must manage additional debt taken to weather the crisis. As a result, the UK economic recovery will not only be much slower but also unstable as the effects of the borrowing unfold. We are unlikely to see the real impact of this borrowing until the first year has elapsed and businesses start to show the impact within their Balance Sheets.

The only comparative effects that the office of National Statistics can draw on at this time is WWII whereby the Government borrowed 27% of GDP and at present the UK Government are following the same trend to overcome this crisis.

Article from White Paper published by Sally Brady:

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