“Today I am making available an initial £330bn in guarantees, equivalent to 15% of our GDP. That means any business who needs access to cash, to pay their rent, their salaries, suppliers or purchase stock will be able to access a government-backed loan or credit on attractive terms. We are well prepared. We will get through this, and we will do whatever it takes.”

– Rishi Sunak MP, Chancellor of the Exchequer

Context

I’m a Director of a UK-based software company. Founded 2016. 10 employees in the UK. Nearly £2m annual revenue. About 1000 business customers from all over the world. Approximately 30% revenue from UK, 70% from overseas. Positively contributing (in our small way) to the UK balance of trade.

Most of our software products are subscription based so we have annual recurring revenues from our annually renewing customers, as well as growing our customer base by roughly 250 new customers per year. 100% bootstrapped. Zero external investment. Employee-owned. A proper British business, doing things properly, working our asses off, trying our best.

So that’s the good stuff. Here are the warts… We have no physical assets. We’re mostly pretty young (30s/40s). We’re mostly working-class northerners and have no real collateral to put up as equity for loans. None of us bought a flat in London 15 years ago and got rich through capital appreciation of the crazy London housing market. The only money any of us really have has been earned (and taxed).

The reason I mention that is because the UK business loans market is essentially just a re-branded second-mortgage market. Don’t have a crap load of property-based equity to use as security against your business loan? Sorry, computer says no.

Despite the business objectively doing pretty well, we have zero cash reserves. Every penny we’ve made has been invested into our technology, our team or going to pay historic creditors for debt that was accrued in the early days of the business.

No problem, on our current trajectory, we just keep trading and we’ll soon have cleared all past debts, and be generating tens of thousands of pounds of profit per month.

Along came Covid. 

No problem. We’re remote. We’re IS027001 compliant so we’ve run a number of crisis scenarios and have pretty exceptional levels of business continuity preparedness. We’re tough and gritty. Pulling an enterprise software company up by the bootstraps is not an easy task. We’re all accustomed to long days, long weeks and long months. We’re up for the fight.

January. First customer in financial distress. 10k per year of our income gone in a flash. Travel industry though. Most our customers in other sectors should be able to weather the storm better.

Shutdowns begin. First in China. Messages from our customers in China that they want to keep using our software but currently under lockdown so contract renewal likely to be delayed. No worries, happy to be flexible, take care, speak soon.

Business continuing ok for now, but noticeable slow down in new business conversations. Future planning shelved. Few exceptions to the rule who suddenly realised they need our software ASAP. Renewals ok, but lots of uncertainty creeping into conversations, especially with our corporate customers who’re watching their own cashflow and financial health. Few compromises negotiated. Try to be fair and human about it. Everyone’s fighting their own battles.

Coronavirus Business Interruption Loan Scheme (CBILS) announced. 

Genuine hearty sigh of relief. The government is finally stepping up. Rishi Sunak MP announces hundreds of billions in government-guaranteed finance available for business, as part of a wider package of support. Bank loans though? Really? Initial skepticism set-aside for now. I’ll take anything to make sure we can ride out the storm.

Details of the furlough scheme also come to light. Great for some, useless for businesses like us. We’re a 24/7 software service. We can’t stop working. We also have high fixed monthly costs for our software hosting and debt payments. We can’t survive by going into hibernation and claiming furlough payments. Still, we’ve got CBILS to help buffer us from any bumps in the road. More details to be announced next week.

Reality begins to dawn.

Next week comes. Forty providers. FORTY? But there are 1 million employers in the UK (and that’s just Ltd companies, not including partnerships or PLCs). I look through the list of names. Most are unknown to me. I recognise a handful of banks, and the rest seem to be niche or regional lenders.

I recognise one lender as being local to our business and jump straight into their site where I apply for a CBILS loan right away. Email auto-reply “higher than normal demand, we aim to get back to you within 3 working days”. Quick bit of research: They support an area of the UK with about 125,000 employers, and they have a team of 10 investment managers. Well that doesn’t bode well.

I recognise another lender on there as being in an adjacent region to ours. Check their website, yep confirmed, they’re only accepting CBILS applications from businesses in their own region. So that’s a no-go.

Our accountants mention they’ve been in touch with their own bank, and talked through the process and options for clients. I go-to their website to check out what they can do: “Only accepting applications from existing customers. We recommend you to speak to your own bank.” Right. Okay.

I go-to our bank. They have two different types of business accounts (corporate & business). And they are only accepting CBILS applications from customers with corporate bank accounts. Naturally we have a “business account”. Gee, thanks a bunch guys.

Now looking through the list of 40 lenders – which seems like a very small list of providers to begin with when when you’re talking about emergency financing for AN ENTIRE COUNTRY – but it’s now now not even 40 in real-terms at all. It’s a much smaller list.

I start going through each one, lender-by-lender, writing notes about each one to help me keep track in order to help us find money ASAP.

After some rants on Twitter a journalist for a British newspaper reached out to me, and I spoke about the problems. Seems like a lot of other businesses are having the same problems. We agree to keep in touch, as it doesn’t look like a solution is coming any time soon. In the meanwhile I keep going through more lenders documenting what I’ve found and trying to apply for anything we might be eligible for. I decided I’d publish what I’ve found so far. In part to potentially help other business people looking for a loan (hopefully my notes might help you find the right lender without having to go through the same effort as I have), and also to help raise awareness about the major problem of the CBILS system.

Full Findings

*Disclaimers:
1) I’m only human, and these results are just my interpretation of what I found from the banks and lenders websites. There may be inaccuracies, and if anyone has any information contrary to what I’ve reported, please contact me at leon@leonmallett.com and I’ll gladly make amendments. 

2) I do not blame the banks or lenders for any of the issues reported. My criticism is solely with the nature of the government scheme itself, not the way the lenders have implemented it. 

Disclaimers over with, you can download my full results here (.xlsx excel file) (New Update: 14 April). This is a working document that I will update as time goes on. The ‘last updated date’ is in the bottom left.

RESULTS SUMMARY

TOTAL LENDERS: 40
TOTAL LENDERS WE CAN APPLY TO A CBILS LOAN FROM: 4
VIABLE CBILS LENDERS AS % OF TOTAL: 10%

So yes you read that correctly. Out of 40 lenders, we can only apply for a loan from 4 of them. FOUR. That means, for a variety of reasons, 90% of the originally listed providers of CBILS are not viable lenders to us.

REGIONAL ONLY LENDERS: 14 of 40 (35%)
LENDERS ONLY SUPPORTING EXISTING CUSTOMERS: 12 of 40 (30%)
NO CASH LOANS. TRYING TO SELL OTHER PRODUCTS: 6 of 40 (15%)
SECTOR-SPECIFIC LENDERS: 2 of 40 (5%)
NO MONEY (no, really): 1 of 40 (2.5%)
NO LONGER PARTICIPATING IN SCHEME: 1 of 40 (2.5%)

UPDATE 8 APRIL
I had previously captured Newable as a ‘maybe’ on the spreadsheet report as it wasn’t fully clear from their website as to whether we could apply through them or not. I have a reply. They have withdrawn from the scheme altogether! So now makes it 2 (5%) of the 40 who either have no money or have stopped participating altogether. I would show you a screenshot of the email I received, but I noticed their email has a confidentiality clause in it.

COMMENTS

I mean, the fact that the CBIL scheme is only 39 38 lenders, not 40, because one of the lenders actually has NO MONEY is a pretty good summary of how ridiculous CBILS is.

6 of 40 lenders are not even offering business loans. They are trying to use the programme to leverage their own financial products (mainly asset/lease finance or invoice factoring services). I don’t begrudge the lenders exactly – that’s what they do – but REALLY?

Isn’t the purpose of the CBIL scheme to f–ing help businesses? Not help lenders flog their assorted financial products with bonus government guarantees? Who needs to lease new equipment right now?!? Surely asset-based finance is the last thing on anyone’s mind. I mean, invoice factoring might be a bit handy IF YOU’RE ACTUALLY SELLING ANYTHING TO BE INVOICED.

14 of 40 are regional lenders. That’s ok, you’ve probably got a lender that’s operating in your region… 13 of the 14 aren’t, though.

Our regional lender is BEF (West Yorkshire, North Yorkshire, Humberside and Teesside). The BEF website has a list of their investment managers. There are 10. Now there are about 125,000 employers in Yorkshire & Teesside. How are 10 people supposed to support loan requests from up to 125,000 organizations?? We applied and immediately got a warning saying they were extremely busy and there may be processing delays. I mean, I’m not surprised. We applied 26 March so far it’s 8 April and haven’t had a reply yet. Now again – to be clear – I do not blame BEF at all. I’m sure they are doing everything they can. They are simply not set-up to support massive scale emergency funding for thousands, even tens of thousands, of businesses.

BEF is 1 of 5 lenders we can actually apply for a CBILS loan from, which I suspect in real-terms means we only have 4 viable options because the chances of them getting to our application any time soon is approximately zero.

And I mean, BEF actually looks pretty good compared to some of the other regional lenders. Not to sound disrespectful but I have no idea how these guys are going to support the 240,000 companies registered in Wales…

 

Conclusions

As soon as I saw there were 40 lenders, my brain was racing through the basic arithmetic of how this scheme could work. I’ve plugged the numbers with some pretty loose estimates. If anyone has more realistic data, I’d happily adjust it.

• Normal supply of lenders to support UK-market: This is a total guess, but between direct and indirect lenders let’s say 400 (estimate, makes the maths easier)
• Increased demand for loans due to covid19 & lockdown: 100x normal demand (estimate)
• Reduced supply of lenders: 90% reduction (40 from 400)
• Differential of normal supply & demand VS newly reduced supply and increased demand: 1,000x
• Normal average business loan processing time: 8 weeks.
• New average processing time… 8,000 weeks… well you get the gist.

Now my inputs have all kinds of flaws and I’m sure there are significant inaccuracies, but these are the basic order of numbers we’re talking about. IT DOESN’T WORK. And I find it absolutely mindboggling that the people coming up with the scheme in the treasury didn’t factor these kinds of massive logistical restrictions into their planning.

The numbers above are based on 40 lenders. Now consider the fact that our business (and most other businesses) will only be able apply to 4 viable lenders. Insane.

UPDATE 14 APRIL

I can’t say this is a particularly big update, but also that’s kind of the problem. We applied to all 4 of the lenders we are eligible to apply for. Here is the current status of those loans:

ASKIF:
Initial application 3rd April. Full application submitted 6th April (8 days ago)
14 April Status: No response.

Barclays: 
Initial application made 3rd April (11 days ago)
14 April Status: No response

BEF Enterprise Fund (Our Regional Lender):
Initial application made 26th March (19 days ago)
April 14 Status: No response

Hitatchi Capital UK: 
Initial application made 3rd April (11 days ago)
April 14 Status: No response

Thoughts & Suggestions

There have already been various stories in the media criticising the CBIL scheme. In response to these criticisms Rishi Sunak has said that Directors no longer need to act as guarantors on the loans, while removing the need to prove the business had been previously refused loans.

But how does that even touch the sides of this? CBILS is fundamentally and catastrophically broken. No tweaks to the terms and conditions of the scheme are going to fix it. 40 lenders (actually 39, now 38), cannot be relied upon to support the entire country’s business community.

Businesses up and down the country are currently sprinting towards a cliff edge. March was likely not too bad for many businesses, because most invoices are paid 30 days in arrears. For many, March was covered by the money earned in February pre-lockdown. The house of cards is going to start coming down at the end of April and it’s going to keep getting worse and worse until a viable scheme of business support is introduced.

We cannot rely on the banks. The only viable way I can imagine this possibly working is via HMRC. Major grants and/or loans from the government, automatically calculated based on company filed accounts. It has to be automated because it needs to scale very hard and very fast. You cannot have lending managers reading hundreds of thousands of f-ing business plans making individual lending decisions. It won’t work, and the clock is ticking.