Covid-19 loan schemes reaching firms in most financial difficulty

Seven in ten UK businesses have been negatively affected by the coronavirus crisis
Business lending schemes are being well targeted towards firms with a greater need
Lenders are approving 90 per cent of applications for government-backed loans where a final decision has been made

UK businesses are facing significant difficulties in the face of the coronavirus pandemic and are pessimistic about their growth once the crisis passes, according to a survey commissioned by UK Finance and undertaken by BVA BDRC. The research finds that the COVID-19 crisis has negatively impacted 69 per cent of businesses, with three out of five (60 per cent) not expecting to return to growth in the near future, and only 23 per cent predicting an expansion of their business.

However, the survey of 1,200 firms finds that the government-backed coronavirus lending schemes are reaching the businesses which need it most. Those firms who have secured funding through the Bounce Back Loan Scheme (BBLS) or Coronavirus Business Interruption Loan Scheme (CBILS) say they have lower cash reserves than the national average and have owners who are more likely to use personal funds to support their business.

In turn, these firms have used the funds to adapt to the new business environment, with 45 per cent allowing for more online and telephone orders in response to the social distancing restrictions introduced during lockdown.

In addition, the research reveals that of those firms who have heard back from their lender about a BBLS or CBILS facility, nine out of ten have had their application approved. This is higher than the industry average of eight out of ten for all loan applications from SMEs¹.

Current business environment is tough

The survey shows that nearly seven in ten firms have been negatively affected by the virus, with 36 per cent of these expecting to make permanent redundancies or temporary lay-offs. One key issue facing the business community is cash flow, with one fifth of firms (19 per cent) having less than one month of cash reserves left. Indeed, one quarter (26 per cent) of business owners have already injected personal funds into their business to help keep them solvent. While businesses are taking steps to mitigate the economic consequences of coronavirus, 60 per cent do not expect to return to growth anytime soon, and 18 per cent say they are likely to cease trading or may not survive².

Government-backed loans are reaching those businesses in real need

Analysis of the survey by UK Finance finds that firms which have secured finance through CBILS or BBLS say they are facing greater economic distress, meaning that support through the two coronavirus lending schemes is reaching those businesses who need it most. Latest figures show that so far, a total of £33.4 billion has been lent to 828,000 businesses through the two schemes³.

Of those who have received a government-backed loan, 58 per cent have less than three months in cash reserves, compared to an average of 39 per cent across all businesses. Over three quarters (78 per cent) of these business owners have done or are planning to put some of their personal finances into their business, with the average rate across all businesses being 39 per cent.

Funding through these schemes has also helped businesses adapt to the new economic environment. Almost half (45 per cent) have changed their business model to allow for more online and telephone orders - compared to an average of 26 per cent across the UK - with a further 19 per cent planning to make adaptations in the near future. These businesses are also more optimistic about the future, with 87 per cent of loan recipients saying they will survive, higher than the national average of 83 per cent.

Nine in ten applications for government-backed loans are approved

The survey finds that of those businesses who applied for a Bounce Back Loan or Coronavirus Business Interruption Loan and have received an answer from their lender, almost 90% have been offered a facility. Businesses have largely approved of the application process for the lending schemes. Half of firms rated their overall experience of applying for a loan through CBILS as either very good or good, with just 14% finding it poor. Similarly, 54% found applying for a Bounce Back Loan to be a good experience

Commenting, UK Finance CEO Stephen Jones said:

The banking and finance sector has a clear plan to help get businesses through these tough times.

?The coronavirus crisis has created huge challenges for businesses, and lenders are committed to giving companies of all shapes and sizes the right support. The industry has already approved hundreds of thousands of loan facilities over the past three months, ensuring those firms with the greatest need get the finance they require.

?We stand ready to go further, and would urge any business concerned about their financial situation to contact their lender.

?It's important to remember that any lending provided under government-backed schemes is a debt not a grant, and so firms should carefully consider their ability to repay before applying.

For more information please call Jonathan Suart (Hanbury Strategy) on 07906 303883 or jonathan.suart@hanburystrategy.com

Area of expertise:

Commercial

Notes to editor

<p>UK Finance is the collective voice for the banking and finance industry. Representing more than 250 firms across the industry, we act to enhance competitiveness, support customers and facilitate innovation.</p>
<ol><li>Banks approved eight out of 10 applications for SME finance in Q2 2018 (UK Finance SME Finance Update, August 2018, <a href="https://www.ukfinance.org.uk/system/files/SME-Update-Q2-2018.pdf">link<…;)</li>
<li>The proportion of businesses which ceased trading in 2018 was 11% (House of Commons, December 2019, <a href="https://researchbriefings.files.parliament.uk/documents/SN06152/SN06152…;)</li>
<li>Lenders have so far <a href="https://www.ukfinance.org.uk/press/press-releases/billions-provided-to-…; over 828,000 facilities in the past three months through the two Government-backed lending schemes - which is <a href="https://www.ukfinance.org.uk/press/press-releases/lenders-back-business…; the average number of facilities provided each year to small businesses in the UK by the ten largest banking groups over the past five years (275,000).</li>
</ol><p><u>Survey</u></p>
<p>Questions were placed on BVA BDRC?s Business Opinion Omnibus, an online survey amongst financial decision makers in businesses with a turnover of £250,000 or more. The survey was conducted between 1-18 May 2020</p>
<p><strong>Current business environment is tough</strong></p>
<p><em>Q. Has your business been affected by the coronavirus outbreak?</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">Negatively Affected</th>
<th scope="col">Unaffected</th>
<th scope="col">Positively Affected</th>
<th scope="col">Not sure</th>
</tr></thead><tbody><tr><td>Total</td>
<td class="rtecenter">69%</td>
<td class="rtecenter">19%</td>
<td class="rtecenter">10%</td>
<td class="rtecenter">2%</td>
</tr></tbody></table><p><em>Q. You said your business has been negatively affected by the coronavirus outbreak. What has been the consequence of this?</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">Temporary lay-offs</th>
<th scope="col">Permanent redundancies</th>
</tr></thead><tbody><tr><td>Total</td>
<td class="rtecenter">24%</td>
<td class="rtecenter">17%</td>
</tr></tbody></table><p><em>Q. How many week's worth of cash reserves do you have left, if any?</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">None</th>
<th scope="col">Less than 1 week</th>
<th scope="col">1 week - a month</th>
<th scope="col">1 - 3 months</th>
<th scope="col">3 - 6 months</th>
<th scope="col">6 - 12 months</th>
<th scope="col">12+ months</th>
<th scope="col">Not sure</th>
</tr></thead><tbody><tr><td>Total</td>
<td>6%</td>
<td class="rtecenter">3%</td>
<td class="rtecenter">10%</td>
<td class="rtecenter">20%</td>
<td class="rtecenter">19%</td>
<td class="rtecenter">12%</td>
<td class="rtecenter">14%</td>
<td class="rtecenter">17%</td>
</tr><tr><td>Accepted for government-backed schemes</td>
<td class="rtecenter">4%</td>
<td class="rtecenter">6%</td>
<td class="rtecenter">18%</td>
<td class="rtecenter">30%</td>
<td class="rtecenter">17%</td>
<td class="rtecenter">12%</td>
<td class="rtecenter">9%</td>
<td class="rtecenter">5%</td>
</tr></tbody></table><p><em>Q. Thinking about external finance for the business, have you done or are you considering injecting personal funds into your business?</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">Have done</th>
<th scope="col">Planning to do</th>
</tr></thead><tbody><tr><td>Total</td>
<td class="rtecenter">26%</td>
<td class="rtecenter">13%</td>
</tr><tr><td>Accepted for government-backed schemes</td>
<td class="rtecenter">52%</td>
<td class="rtecenter">26%</td>
</tr></tbody></table><p><em>Q. With the measures you are taking, what are you currently expecting the post crisis future of the business to be?</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">Survive and grow</th>
<th scope="col">Survive but not grow</th>
<th scope="col">May not survive</th>
<th scope="col">Likely to cease trading</th>
</tr></thead><tbody><tr><td>Total</td>
<td class="rtecenter">23%</td>
<td class="rtecenter">60%</td>
<td class="rtecenter">14%</td>
<td class="rtecenter">4%</td>
</tr><tr><td>Accepted for government-backed schemes</td>
<td class="rtecenter">26%</td>
<td class="rtecenter">61%</td>
<td class="rtecenter">11%</td>
<td class="rtecenter">2%</td>
</tr></tbody></table><p><strong>Government-backed loans are reaching those businesses in real need</strong></p>
<p><em>Q. What other actions, if any, has your organisation taken to manage the impact of coronavirus on your business? </em></p>
<p><strong><em>Shift to e-commerce</em></strong></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">Have done</th>
<th scope="col">Planning to do</th>
</tr></thead><tbody><tr><td>Total</td>
<td class="rtecenter">26%</td>
<td class="rtecenter">10%</td>
</tr><tr><td>Accepted for government-backed schemes</td>
<td class="rtecenter">45%</td>
<td class="rtecenter">19%</td>
</tr></tbody></table><p><strong>Nine in ten applications for government-backed loans are approved</strong></p>
<p><em>Q. Which of these best describes what happened when you did each of the following?</em></p>
<p><em>Base: All who applied for one of the schemes and have heard back</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">
<p align="center">Made an offer</p>
<p> CBILS</p></th>
<th scope="col">
<p align="center">Made an offer</p>
<p> BBLS</p></th>
</tr></thead><tbody><tr><td>Total</td>
<td class="rtecenter">89%</td>
<td class="rtecenter">87%</td>
</tr></tbody></table><p><em>Q. And how would you rate your overall experience of the application process?</em></p>
<table border="1" cellpadding="1" cellspacing="1" style="width:100%;"><thead><tr><th scope="col"> </th>
<th scope="col">Good or very good</th>
<th scope="col">Poor or very poor</th>
</tr></thead><tbody><tr><td>BBLS</td>
<td class="rtecenter">54%</td>
<td class="rtecenter">19%</td>
</tr><tr><td>CBILS</td>
<td class="rtecenter">50%</td>
<td class="rtecenter">14%</td>
</tr></tbody></table><p> </p>
<p> </p>
<p> </p>