Many commentators (including our CFG chief executive) have written more eloquently on the wider concerns, both financial and otherwise, that civil society organisations are having to consider due to Coronavirus. There is a wealth of technical documents outlining eligibility criteria of the varied business support measures, so this blog will not attempt to replicate either of these, but will instead look at an area which has received relatively little attention, that of loans and charities during and after the COVID-19 crisis. I’ll review some of the key issues charities might want to consider when looking at these schemes and some of the remaining practical issues that we have heard charities are experiencing that aren’t necessarily addressed in the myriad of guidance, webinars and FAQs.
One of the flagship business support measures announced by the chancellor is the Coronavirus Business Interruption Loan Scheme (CBILS), but since the initial announcement on CBILS was made ( what feels like an eternity ago) there have been several other loan schemes announced including the Coronavirus Large Business Interruption Loans CLBILs aimed at giving larger loans to bigger organisations, and the newly available ‘Bounce Back’ loan scheme (BBLS) focussed at smaller organisations who had found it difficult to access the other forms of loan finance.
There has been positive news that the 50% trading requirement for charities has been removed from these schemes, and this has removed one potential restriction for charities looking to apply for these, but from conversations with charities and lenders, this has not been the primary stumbling block for greater take-up.
According to our Temperature Check survey of CFG members, roughly 1 in 10 have either applied for a CBILS or CLBILS loan or were considering doing so in the future. And of those who have applied, only a handful had been successful. From conversations with lenders, there are many more who are applying and who have been successful. CBILS/ CLBILS and BBLS are ultimately debt, which may not be suitable for all charities, in many instances other services, such as a Revolving Credit Facility, may be more appropriate and useful, so we would advise having a conversation with your bank about these different options to see what works for you.
And it is hardly surprising that at a time of unprecedented (if you thought any blog about Coronavirus could exclude that word, you are mistaken) uncertainty it is not surprising that many charities, or businesses for that matter, have been hesitant to be saddled with debt when they have no way of accurately determining future income streams. But that being said, for many charities low-interest loans, without additional fees, will be a lifeline when a lack of liquidity is the most pressing concern.
As with nearly all of the Covid-19 support measures created by government, they have been designed with business in mind. So the process for application may present some challenges for charities. For instance, a requirement of the CBILS and CLBILS scheme is not to be classed as a ”business in difficulty” prior to the outbreak of Covid-19, if applying to borrow £30,000 or more. This may present some challenges for charities. As there will be many who have lower than average levels of reserves or a deficit budget for the year, without this indicating that the charity is not financially viable, or in any financial difficulty. As it could be due to a strategic decision taken at board level that will result in better support for beneficiaries in the future, for instance.
But without an understanding of how charities work, and an accompanying narrative from the charity explaining why this is the case, many lenders have been hesitant and refused to offer finance. There may need to be some work needed from the regulators to provide guidance to the British Business Bank on some of the considerations to take into account when determining what ‘business difficulty’ might look like for a charity, so that lenders do not refuse otherwise suitable charities from receiving much-needed funds.
An additional issue, which is understandable from a banks perspective, is that they have prioritised existing customers, as they will have already carried out due diligence around Anti-Money Laundering and Know Your Customer checks. So it may be a matter of months before non-customers will be able to receive funds via CBILS/CLBILS with some accredited lenders.
A further consideration that won’t affect much of the sector but is nonetheless worthy of note is that of Islamic charities. Due to Islamic banking practices, they will be prohibited from taking on debt, so will not be able to participate in any of these schemes. It would be interesting to explore additional mechanisms that could be put in place to allow finance to this small but important part of the sector and to ensure parity of access to support measures
Bounce Back Loans (BBLS)
There is much to commend about the new BBLS. From the removal of the 50% trading requirement (mentioned previously), providing lenders with a 100% government-backed guarantee should incentivise lenders to loan money, interest rates capped at 2.5% after the first 12 months, where government will cover interest payments, the borrower will not need to make any repayments for this first year either. And to help speed up the process as much as possible, charities are only required to self-declare that they were not in ‘business difficulty’ prior to Covid-19, so it does avoid some of the challenges previously outlined. But the key test of the new scheme will be how many charities that wish to apply are accepted, and how quickly they can receive funds. Alongside sector partners, we will be monitoring this closely and will seek to propose amendments if required.
If you have applied under any of these schemes, please do let us know about your experience so we can provide any additional support that may help you and your charity during this difficult time.
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