Who pays the “cBILS”?

Apr 9, 2020

Rishi Sunak, the Chancellor of the Exchequer, announced last Thursday, 2nd April, that he was revising the financial support scheme to help small and medium sized firms suffering during the nationwide lock-down – the Coronavirus Business Interruption Loan Scheme (Or C-BILS)

The original scheme promised support to the tune of £330bn. – that is 330,000 million pounds.  Last Thursday it was reported that £145m of that £330bn had been lent out.  To put that in perspective it is like me saying I have £1,000 to lend to people in real need, quickly.  And you ask me how much have I loaned out so far of the £1,000?  And I reply 25p.  When you ask me how I was administering the scheme, I reply I was using agents who were lending the money on my behalf.  Rishi Sunak’s agents were the banks.  They were offering their own loans first (before offering C-BILS) and asking for personal guarantees and allegedly in some cases charging up to 30% on those loans.  No wonder it has been slow to get going.

The Chancellor now says he has removed the need for personal guarantees.  But he has still not capped the amount of interest that banks can charge.  So, what does that mean on the ground?

To take an example, on the BBC Radio4 Today programme this morning, Andrew Howard, of PC Howard, a road haulage firm, said that he did not qualify for the scheme since he could not show his firm was ‘viable’.  This was because his Profit and Loss and Cash Flow forecasts were impossible to predict accurately when his business was facing unprecedented fluctuations in demand and there was no way of knowing how long the lock-down would last.  Normally his trucks would be fully loaded with both ‘essential’ and ‘non-essential’ goods.  With all the non-essential goods excluded he was now running his trucks for most trips 44% empty; thereby losing money on each trip.  On the one hand he was assisting the nation to survive (by delivering medical, food, and other essential goods), while on the other hand his business was suffering financial losses in the process.  He claimed that he had been denied support from two banks because both felt that he did not qualify since his firm appeared to be ‘unviable’.  Technically it is and none of it is his fault!

On the same programme, Richard Burnett, the CEO of the Road Hauliers Association, pointed out that 46% of the nation’s fleet of trucks were currently out of commission.  That is 240,000 trucks out of a total fleet of 525,000, standing idle.  80% of road haulage firms are small and medium sized and most are working on margins of 2% and normally hold no more than 2 – 3 weeks ready cash in the business.  So, while Mr Burnett says it is good that the Government recognises that the haulage industry is vital in keeping the nation fed, the measures that they have come up with so far ‘simply don’t work’.

So precisely the kind of ‘high productivity/ low cost’ management that has been admired by British shareholders since the 80’s, which has squeezed both costs and profit margins to improve return on their investments, turns out to be precisely the wrong model to deal with a pandemic crisis.  And the nation is now frozen in the headlights.

When this health crisis begins to ease, the real challenge will be for the Nation to address its economic crisis.  Picking up the pieces will be similar to the aftermath of the Australian fires – social, economic and environmental devastation.  Counting the cost will be difficult.  Developing strategies to achieve future prosperity will need some fundamental re-thinking.

Nick Clifford (Partner) April 8th 2020

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