CBILS update: newly simplified emergency loans for SMEs still fall short of German and Swiss schemes

In our recent blog, we looked at why small and medium sized businesses (SMEs) in the UK were finding it difficult to access the government’s Coronovirus Business Interruption Loan Scheme (CBILS).

In large part, it was down to the complexity of the rules for accessing it and because the banks had difficulty training staff and dealing with the high volume of inquiries. So on Friday 3 April, the government announced a more simplified scheme. This made it easier for applicants to qualify for loans and addressed the problems faced by medium-sized companies in accessing UK government business finance support schemes.

Interestingly, Germany’s SME support system has also faced similar issues. With the KfW (Germany’s state development bank) at its core, you’d expect it to have less trouble delivering the special scheme introduced to tackle COVID-19’s disruption, which guaranteed 90% of loans. But because of the scheme’s initial complexity, it had to be quickly supplemented with a 100% guarantee scheme that charged higher interest rates.

Despite the new changes to CBILS, the UK government is still only guaranteeing 80% of the value of the loan. So UK banks have to lend the uncovered 20% at a risk to their depositors, shareholders and bondholders – to whom they have a fiduciary duty. They also need to be sure that they’re not overburdening loanees with debt they cannot reasonably be expected to repay. This is hard to gauge in such uncertain times. But if the government guaranteed 100% of loans, like Germany, the banks could lend much more freely since the loans would effectively become grants.

But in all of Europe, it’s perhaps the Swiss who have lead the way in disbursing loans to SMEs hit by the crisis. They recently doubled the emergency funds available in their scheme to 40bn Swiss francs. Applicants are only required to electronically submit a one-page form, and the Swiss banking system has fully co-operated in rapidly processing applications and disbursing funds. This part of the scheme has a 100% government guarantee and SMEs can apply for up to 10% of their annual revenue (capped at 500k Swiss francs). The second part of the Swiss scheme offers another 20bn Swiss francs in loans, with 85% government guarantee and interest rates of 0.5%. Participating banks assume the risk of the last 15%, charging their own risk-related interest rate.

So while the government has responded to criticism over CBILS and undoubtedly made improvements, as Germany and Switzerland prove, there is still some way it could go to making it even quicker and easier for UK banks to help struggling SMEs access emergency loans.