The government must bring in urgent reforms to its coronavirus loan scheme to stop small businesses going bust.
That’s the message from MPs and firms who say loans are still being approved too slowly to help firms hit by lockdown measures. Global banks are being forced to team up with smaller financial technology firms as they battle to get cash out to struggling small businesses as fats as possible.
The British Chambers of Commerce said that only 2% of UK’s firms had so far secured the loans.
Loan problems
Ministers brought in the Coronavirus Business Interruption Loan Scheme with promises that they would do whatever it took to support firms hit by the shutdown.
Government-backed loans were to be available to all firms that were solvent and trading when the shutdown began.
The Treasury revamped the loans scheme two weeks ago, while banks said they worked through the Easter weekend to boost lending.
The National Association of Corporate Finance Brokers (NACFB), whose members arrange finance for thousands of small business clients, said that even after a government overhaul announced two weeks ago, it was still taking far too long to apply.
Each application took more than five hours to get through the necessary paperwork, it said.
Paul Goodman, chair of the NACFB, said that was far too slow to allow the country’s five million small businesses to access cash in time.
“The way it’s set up, banks are still having to work out whether or not they would lend to the business if it were normal times,” he said.
“That means there’s nothing for customers who have a perfectly viable business, but can’t show all the banks require to get a government-backed loan.”
According to the BCC’s figures, 17% of businesses had only enough cash to last a month, while 36% had less than three months’ cash reserves.
MPs on the all-party group for Fair Business Banking say the scheme must be made much simpler and faster to prevent small and medium-sized enterprises from going under.
Kevin Hollinrake, who chairs the group, said: “We’ve seen many more loans being approved, which is clearly great news.
“But we need the process to be simpler and faster in terms of getting this money into bank accounts.
“We also need better data on a daily basis to see the numbers of applications being made, the numbers being refused and the numbers being approved. We only have days to get this right.”
He said that next week, many small businesses will have to make payroll and supplier payments.
“We need to get this money into business bank accounts this week or we’ll see lots of small and medium-sized enterprises start to go bust from next week,” Mr Hollinrake warned.
(source BBC News)
CBILS and R&D Tax Relief
For companies undertaking R&D, it is also important to recognise that the Government has notified CBILS as a State Aid under the European Commission’s new Temporary Framework for COVID-19.
Predicting what treatment may apply in the future is risky, as the relevant claims have yet to be made, and the legislation may change given the current abnormal circumstances.
However, based on current law, if a company receives a CBILS loan that in whole or in part covers expenditure on an R&D project then it will lose the ability to claim the SME relief in respect of that project and have to claim RDEC on the whole R&D project expenditure.
CBILS purpose of loan?
As CBILS is a more general ‘business survival’ loan (as opposed to, for example, an R&D grant), and therefore may not have been allocated to specific expenditure, it should be apportioned on a just and reasonable basis. This is unexplored territory and different people might have different views on what is just and reasonable. It might be expected that the loan would be applied to more urgent expenditure than R&D.
HMRC will be monitoring the application and treatment will depend on the facts.
If you’d like to find out more, we’ve set up our own Covid-19 Helpline on 0114 263 2632. Alternatively, for general enquiries about R&D tax credits, we’re available at 0114 230 8401.
