Why Bank loans are not solving the problem

Dear Members,

Apart from the moral question of Why should business people put themselves into debt to solve a Government self inflicted scenario?

They should have stopped the planes, and quaranteened returning UK Nationals 3 months earlier.

There is a fundamental problem with using the banks to distribute cash. This is that the banks understandably look for security. Big businesses sometimes have available assets, but more often than not they don’t.

As a consequence money is leant to organisations with healthy balance sheets, who don’t need the money and store it for a rainy day or for acquisition. And they don’t lend it the firms who need it. Not the Banks fault, just bad Government Policy.

Further the people who need it, would by definition spend it, putting cash into the economy.

This in turn with take advantage of The Velocity of Money, namely the same £100 gets spent many times thereby benefiting many people. This massively reduces the size of the bill that we the taxpayers are going to have to repay.

One of our members was sent this by their Finance Broker

“The Credit Reference Agencies have today announced that businesses on payment plans due to COVID-19 should not have their credit score negatively affected. This should give some peace of mind to businesses.
Last week the Government made a sweeping change to the Coronavirus Business Interruption Loan (CBIL), where they have removed the requirement for personal guarantees (PG’s) or for the need to look at personal assets, for loans under £250,000. A bold move, but one that has been widely welcomed by the business community.
Whilst this is indeed excellent for some, I fear that this will make the bar a little higher to reach and in the long run have a negative effect on some businesses being able to qualify for the CBIL scheme via the bank. In fact a few of our alternative CBIL lenders withdrew from the scheme as they are unable to lend without a PG. A big blow I felt.

Data from UK Finance show that banks have paid out just £291.9m to just over 2,000 businesses under the coronavirus business interruption loan scheme. This translates as an approval rate of just 0.65%. This was published in the National Association Of Commercial Finance Brokers (NACFB) newsletter today.

 

So the approval rate of loans is 0.65% .

That means that for every 1000 businesses that have applied 6.5 got approval. The rest wasted their time.

The Government has made available £330 billion in loans and guarantees, and £291 million has been lent so far that is 0.09% IT’S NOT WORKING

That feels like cherry picking to me. It certainly is not working. Happy to be wrong about this, I hope I am. But if this is true the Government needs to  Change Tack and do so fast.

CLICK HERE to see our advice and solution. There are some 25 million households UK give them £1000 a month, for three months. Cost £75 billion. Which is 1/4 of 330 billion and would have the effect of £225 billion (See The Velocity of Money blog) and raise £75 billion in taxes through corporation tax and VAT. Not to mention the saving of a million businesses and the associated jobs.

These are we accept back of an envelope calculations, but that could be out by a 16 and still make sense. A 1/4 the price and 4 times the benefit.

It is an interesting conundrum, because it is not about giving to the rich in proportion to previous earnings, because the rich will invest or spend it abroad. It is about supporting the poor, the Front line workers, bus drivers and nurses who are putting their lives on the line, but who in addition will spend the money,and put cash into the economy, because they need to. Yet again Government policy is upside down.

Stay Safe

 

Nick

8 Responses

  1. Nick Stephens
    | Reply

    I have not applied for a loan so I have no personal experience to share. I do have an observation which is that if we believe pessimistically that the current crisis will be in full effect through to September and the banks improve their rate of lending substantially .. that there will be c.200 Billion left in the “pot” by then.

    That’s 10 Billion a week “left over” or £142 per man woman and child per week! Enough to feed and warm them at worst.

    Or the Government could continue to put their fingers in their ears, say “lah lah lah” and watch 20%, 30% or more of businesses go bust and a larger number of families forced into poverty.

    DO THE RIGHT THING!

    • Nick Brown
      | Reply

      Nick hi,
      There are many many people out there who feel the same way.

      Nick

  2. Martin Munro
    | Reply

    Unfortunately the chancellor has turned on a tap but the pipes are not wide enough to let the solution flow. Part of the blockage is that banks are not in the business of taking risk and are making viability and credit risk assessments. The chancellor defended the government’s 80% guarantee on the grounds that businesses have received other support in the form of rates relief and local authority grants but surely that misses the point – there is a mis-match in that the businesses have had that money but that does not help the banks make their credit assessment.

    I have members (clients) who have applied for loans and are still waiting to hear back from the banks and in some cases each rule change has required them to submit fresh numbers. If I heard the chancellor correctly in his briefing today the number of loans granted had only reached 4,000 at the end of last week. This is very worrying for business owners with suppliers calling for their money and payday looming. The weekend work by the banks needs to pay huge dividends to make dent in the number of applications outstanding. Removing the 80% cap would surely make a bigger difference.

    • Nick Brown
      | Reply

      Martin hi,
      Yes, as every very sensible suggestions. I would just add that lots of businesses are not getting the Rates refunds they are entitled to. If they pay by DD The council say they will. However if they pay by Cheque or Standing order they won’t unless they apply, but noone is telling them this. The Councils know who they are, where they are and how much is owed. All they have to do is process a cheque run. And yet they dont. The question being WHY? And that opens up a whole can of worms about the real willingness to help business.

      Our job as a Chamber of Commerce is to expose this.

      Lets wait and see.

      Nick

  3. Rob Morgan
    | Reply

    Not withstanding the ideological difficulties that may hamper some of our leaders in looking at a universal minimum household income, even for a limited period, it looks to me like a no-brainer given current circumstances. Just on the numbers you have above it would seem to make sense from an entirely practical point of view and given that at some point at least a proportion of it will be returned in the form of taxation, presumably personal taxation as well as corporation tax and VAT, then it would seem like a pragmatic response. I’m not holding my breath though.

    • Nick Brown
      | Reply

      Rob hi,
      Thank you for your thoughts. It is a no brainer. But unfortunately so are our civil servants. (Front line staff Excepted)
      Nick

  4. Martin Munro
    | Reply

    I totally agree Nick. That was the Chancellor’s rationale – not mine.

    A lot of small and not so small businesses occupy serviced offices and do not qualify for the local grants and not all landlords are being sympathetic to rent deferrals or holidays – in part I suspect because of the paucity of accommodation available. I have hear of one landlord wanting to charge a substantial rate of interest for the privilege!

    • Nick Brown
      | Reply

      Martin hi
      Thank you.
      I was in a Zoom meeting yesterday, with the Council. A local retailer said that many “human” were being very helpful. needless to say the pension funds and banks were not. What was surprising is the the Council, is not offerring any help with rents at all as far as i can see.
      We asked a councellor what the procedure was.
      Response We consider each individual case.
      Q. Who should we contact
      R. he did not know
      Q. OK who is the decision maker
      R. It will be the full cabinet
      Q. Are you saying That, if as the biggest landlord locally, when you get 500 applications that you will consider each application individually at cabinet?
      R. No of course not
      Q. So Who is the Decision maker and what are the criteria for success
      R. It would be someone in finance – No Reply on the criteria
      So they dont know who, and they dont have a policy. They are completely unprepared at best. In reality they have not even considered helping.
      Q. So what reassurance can you give me that you will be playing your part in helping here?
      R. You have to understand we have responsibilities

      So the bottom line is that the Council have no intention of helping with rents, but they are quite prepared to waste your time by getting you to jump through hoops. I suppose it gives them something to do whilst they are sat at home on full pay.

      As usual they take and give nothing back. It is certainly my personal experience.I hope I am wrong about this in the current circumstances.

      Incidentally The Council have at their full discretion the ability to give you a business rates Holiday. They repeatedly attempt to pretend they dont. More One way street from WHBC.
      It just not good enough. We pay their salaries. They should Chip in.

      Incidentally does anyone know what their reserves are? The last I heard from a councellor, they are sitting on £ 1 million in the bank.
      Again this should be public knowledge. Nolan Guidelines Transparency etc. Now you cannot get a straight answer out of anyone.

      Nick

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