BOOST&Co’s partner Growth Lending is now providing CBILS. Our Cambridge-based principal Faye McDonough outlines the evolution of the scheme and the trends she has observed so far
It seems a lifetime ago, but it is actually only a few months since the Coronavirus Business Interruption Loan Scheme (CBILS) was announced by the chancellor as part of a series of government measures to support the UK’s small and medium-sized companies – which comprise 99.9% of the country’s 5.9 million businesses – during the Covid-19 pandemic.
The scheme aims to support those SMEs that were trading successfully before March 2020 but which may have experienced lost or deferred revenues and other disruptions to cash flow as a result of the crisis.
BOOST&Co joined forces with fellow lenders GapCap and KX Media Capital to form the Growth Lending Group, with the primary aim of supporting UK SMEs where traditional banks could not. We knew that the circumstances meant that we had an even more important role to play, and we swiftly got to work – at all hours, it seemed – starting with Growth Lending becoming accredited by the British Business Bank to provide CBILS.
Since the scheme was launched on 23 March, the government, British Business Bank and finance industry have worked together to enhance processes and to widen the initiative’s eligibility criteria, aiming to stimulate much-needed economic activity and growth by reaching more SMEs.
Here’s my story of the past four months, from the viewpoint of both an entrepreneurial business and an independent lender.
Early challenges for the scheme
In the first few weeks after CBILS launched, some of Britain’s biggest banks received heavy criticism for being slow to lend to UK companies. The statistics (and headlines) were damning: just 1.4% of firms had been successful in their applications and only 1% of the £330bn available had been deployed.
A redesign of key elements of the scheme, in early April, resulted in a broader initiative with wider eligibility criteria and greater clarity around when personal guarantees could and could not be taken.
Here at BOOST&Co, we started to think about how we could improve the customer experience at such a difficult time. Collectively, we set about designing an online application process that would enable us to receive applications in volume while still devoting individual attention and analysis to each business, enabling us to make independent and informed decisions.
Gaining momentum – but can SMEs get what they need?
In May, HM Treasury started to publish weekly statistics on the performance of each of its four business-support schemes, including CBILS. These show that the value of facilities approved more than doubled in two months, from £6bn to £12.65bn. There was also a significant increase in the number of facilities approved, from almost 36,000 to 57,000.
Disappointingly, however, the approval percentages have decreased over time and are now around 50% – Ensors Chartered Accountants has created a useful summary here.
This could suggest that it is taking longer to process applications, or perhaps a larger number of unsuccessful applications. Either way, it points to an increase in the already acknowledged SME funding gap, which was estimated to have reached £60bn before the pandemic.
Meanwhile, Growth Lending was accredited to provide CBILS and started to receive applications. We have observed three key themes so far:
- In some cases, businesses have been provided with a small CBILS facility. These were typically intended to cover short-term cash flow needs rather than future investment, leading to smaller size approvals (e.g. £250,000 rather than £2.5m).
- Some businesses affected by Covid-19 wanted to take advantage of a strategic opportunity to acquire a competitor or complementary business, but traditional lenders did not have the appetite to fund these, despite the evolution of the guidelines in regard to how CBILS monies may be used.
- Anecdotal evidence suggests that, due to the volume of applications that the banks have received, they have been unable to support proposals with a greater degree of complexity.
Good news for high-growth SMEs
On 16 July, the British Business Bank changed its guidance on the “undertaking in difficulty” test. This required UK SMEs to have lost less than half of their subscribed share capital as of the end of 2019. Although it aimed to ensure that businesses receiving loans could repay their obligations, it was unduly punitive of high-growth SMEs.
As a lender with considerable expertise in funding fast-growing SMEs, we welcomed this news. The change does not give companies automatic access to CBILS – they will still need to prove that they are credit-worthy and that they have been adversely affected by Covid-19 – but it enables us to consider loss-making businesses that expect to achieve profitability in the next 12 months.
The top five features we’re looking for
We welcome applications from companies in all sectors and we specialise in funding high-tech, high-growth firms. Here are the top five features of a fast-growing SME that is suitable for CBILS:
- Revenue – we can lend against future forecast income. To do this, we require visibility of future revenues, whether that is contracted orders, a SaaS model or recurring revenues.
- Sectors – our expertise in high-growth businesses has enabled us to support firms in a wide variety of sectors, from business services to SaaS, and from life sciences to telecoms.
- Business model – with a revenue run-rate of £2m, an eligible business will have a product that is well received by customers, preferably in a B2B market.
- Innovative – investing in future organic growth through innovation could be the focus of the company. It could also be targeting acquisitions to accelerate its strategy and will be profitable within 12 months against reasonable growth assumptions.
- Ownership – the SME can be equity-backed or privately owned. We have experience in funding both types of businesses.
What does the future hold?
It’s clear that the finance industry, the government and the British Business Bank have collaborated effectively to provide a flexible and broad scheme designed to support the SMEs that represent the overwhelming majority of the UK business population.
With approval and volume percentages decreasing, however, and with CBILS due to close at the end of November, it will be interesting to see how the next couple of months pan out. Will SMEs get the support they deserve and need? Will more be done to bridge the widening SME funding gap?
What is certain, however, is that Growth Lending will continue to help as many promising companies to thrive as possible, by providing the funding that they need to grow.