There’s no doubt that every small business owner will be going through a difficult time right now.
The BBC suggests that between 800,000 to 1 million businesses could be forced to shut up shop because they can no longer cover rent, salaries and other expenses.
The Coronavirus Business Interruption Loan Scheme (CBILS) laid out by the government will continue to change as the situation evolves. Already, as of the 1st of April, UK Chancellor Rishi Sunak stated that he intends to overhaul CBILS. The initiative has led to confusion and many questions from small businesses.
The government’s placing their hope on lenders working quickly with them and with little complaint, which may prove difficult. Legacy financial institutions are known for their processes and are typically slow-moving. This will need to change, and fast. These institutions have the stronghold of the SME market, placing them high on the list of those best positioned to help.
However, no matter your political leanings, spare a thought for Rishi and co - there is no blueprint for this situation. This is the biggest UK bailout of its kind, meaning that the government, no matter how much they plan, will have to roll with the punches.
Sunak said that he’s in talks with many banks, although there have been concerns around the ethics of the banks on the Treasury’s ‘approved’ list'. Online and offline, business owners have mentioned that they have seen interest rates run between seven and 30% (above the 0.1% base rate), and others have said they have been refused a loan as they have money in their bank.
That said, we spoke to two small businesses to hear about their thoughts on CIBLS, the present situation and the future.
Lisa Bronson, co-owner of an independent interior furnishings store in Devon
"We ceased operations three weeks ago, have put everything on hold, and have already lost three weeks of income.
We are fortunate enough to have the ability to do some work from home - we can talk to customers and help with existing orders. However, we have received no new orders and have had to put some of the current ones on the back-burner due to a stop in our supply chain.
We are surprised that commercial insurers at this time are not helping their small business customers. Our insurer informed us that we will not be covered for loss of income due to disease as COVID-19 is a 'new' disease. We pay insurers thousands of pounds annually to cover the unknowns. It’s unacceptable.
The government has done what they can in this situation, normally there’s a lot of ‘red tape’, so it seems that they are moving as quickly as possible. We may be eligible for the government initiatives, and we’re waiting for HMRC and our local council to contact us with the relevant information. The process seems fairly simple.
However, I do not believe that the risks around deferment of payment of VAT/tax are clear enough, the messaging gave off a ‘VAT/tax forgiveness’ vibe. Small businesses will, of course, be thinking of the present - how do they weather this storm now - but they will be stuck with a huge VAT/tax bill in a few months and no income in the interim. We will all need support then as well as now, and I’m not sure how the government will handle it.
We have no idea what the future holds for us right now. We’re niche, and we have a loyal clientele. We’re fortunate to be able to continue paying our vendors and bills to keep us on a steady track for the future.”
Darren Holdaway, CEO and founder of Chewwok Interactive, a video games studio based in London.
“I’m feeling panicked, confused - I check online every hour to see if there are any new announcements. It feels very scattered at the moment. The backlog for banks right now feels no different than before. I lost my internet banking details which I need so that I can check what I am eligible for. I was told that it will take at least 5-7 working days to receive this information, yet I need to know what money I can apply for now.
I went through the process of seeing if I fit the criteria for any of the initiatives out there, and it’s ambiguous at best. As soon as I got to my bank, it was very unclear what I was eligible for and why they were rejecting me. Now I have a phone call with them in a few days to understand why I was rejected.
I am deeply concerned. I want to honour my commitments and pay my team and contractors. I have a marketing budget for my launch that now needs to be completely scaled back. Plus, if I need to use my reserves to keep the company afloat for the next few months without external financial help, I need to plan how that affects my business, my team, and my income which impacts my family.”
At Fractal, we empathise completely with both Lisa, Darren, and small business owners all over the UK. As an SME ourselves, we also have questions and concerns around the new initiatives announced. We will be pushing for answers from policy makers, and from financial institutions.
- Repayments: What are the implications? Will small businesses still have to pay interest in three months time if they have not made any money for months. They are now adding an extra cost to their outgoings with a loan they didn’t necessarily want, but needed to take, as it is the only offer they had to stay afloat.
- Will this impact future credit scores?
- What is the baseline criteria to get a loan? If you have bad credit, but somewhat good cash flow, will you be rejected across the board and receive nominal help, and be expected to close shop?
- Is this a Lender of Last Resort scheme, meaning that I need to either be turned down for a traditional loan or to have tried to access the other emergency provisions first before I can apply for a loan?
- Does every lender require the same documentation or does it differ for each provider?
- Am I eligible for a loan if I have funds in the bank that were intended for something like purchasing an asset to grow my business?
We would welcome any feedback and answers. If you would like to tell us about your experiences and send us your questions for inclusion, then please email Lisa at firstname.lastname@example.org.
Although it is difficult at present, we are looking at how the Fractal platform can immediately support financial institutions and small businesses, and in turn, the future state of the economy in the UK and beyond. If you have ideas on how we can help with this, or want to speak to us, you can contact us here.
For financial institutions who want to help their small business customers, you can see how Fractal have been at the forefront of this challenge for years.
- How do late payments impact small businesses?
- Why small businesses continue to struggle financially inc SME case study.
- Why is it so difficult for small businesses to access finance?
- Make it easy: A guide to behavioural science in finance.
- Ethics, Behavioural Science and Fractal.
- Happy first birthday, Open Banking!