Coins in a glass jar and three stacks of coins on a table in front on a blurred green background

Navigating a last-minute government loan… is it worth it?

Lucy FindlayUnfortunately, we are in the dreaded second wave and are now facing the resulting increased restrictions to all our lives again. We will be continuing to lobby for more support for the sector with our New Economy Alliance partners, but in the meantime you could consider (or reconsider) the existing government loan schemes, which are open to applications until 31st January.

Since the beginning of the pandemic, I have been working with the Alliance to take a specific lead on banking, trying to work through some of the blockages that social enterprises have been experiencing in accessing government products. In particular, I have been working with Barclays to troubleshoot the common issues.

In order to gain more insight we recently carried out a survey on behalf of the Alliance to get a better handle on the issues for social enterprises, and I have used this information to help you navigate the vagaries of the emergency banking process, should you choose to!

I’ve talked about the challenges around social investment in many of my past blogs. In particular that, as social enterprises, we end up paying much higher interest rates than mainstream businesses due to a lack of understanding of business form and also the perception of risk, backed up by the eligibility algorithm used to make decisions by mainstream finance providers.

Therefore if you can access a fully government backed Bounce Back Loan (BBL), it’s well worth considering due to the excellent terms, which unfortunately current social investors (who are much more social enterprise friendly) cannot match due to their size. This option is what I will be focusing on for this blog.

However, it is also worth pointing out that there is also another scheme – the Coronavirus Business Interruption Loan (CBIL) – aimed at larger businesses, which is more difficult to access due to the requirement for the bank to guarantee part of the loan. A specialist version of this – the Resilience Recovery Loan Fund (RRLF) – can be accessed via consortia of social investors led by SIB Group. If you want to know more, there is a very helpful toolkit put together by Big Society Capital on their website.

Bounce Back Loans

The terms of the BBL include:

  • no arrangement fees
  • zero interest for the first 12 months
  • 2.5% interest rate with re-payment over 6 years (no fee for early repayment)

Essentially, it’s free money for 12 months, which can really help a temporarily tight cashflow and also provide longer term boost with the long repayment terms and low interest rates.

There are a couple of caveats here, though – the first is that the official deadline is the end of November, although we are hoping that this could be extended by the Chancellor. Our survey also picked up on some common barriers for social enterprises, which include:

  • Banks will only lend to existing customers and not all banks offer BBLs. It’s largely mainstream banks and this excludes Unity Trust and Triodos, which are popular banks for social enterprises.
  • If you have to set up a new account with a mainstream bank, start right now as it can take weeks, if not months. Many of the mainstream banks have currently closed to new customers (although this is currently being reviewed in light of the recent extension of deadline to BBLs by the government). On top of this there is a lack of understanding of social enterprise legal structures and governance, which is biased toward Companies Ltd by Shares.
  • In some cases, the banks have subcontracted out the processing of loans, and seem to rely heavily on technology which doesn’t necessarily understand businesses that are out of the standard mould. Thus, it is difficult to communicate with them one to one which can be very frustrating as customers get passed from pillar to post trying to get an answer.

From the limited responses to our survey, the Co-operative Bank appears to be the most straightforward supplier of BBLs for social enterprises, although it has not been bringing on new customers for BBLs. The most problematic banks appear to be Natwest and HSBC, mainly due to issues/delays with setting up new accounts. Barclays has developed a specialist process, but are currently closed for new bank accounts to access BBLs, so only existing customers should apply.

In summary, I would advise anyone with a straightforward Company Limited by Shares or Community Benefit Society model, who already bank with one of the direct providers (especially the Co-op Bank), to consider applying for a BBL.

If you are a Community Interest Company or Company Limited by Guarantee it might be more complicated, especially if you need to set up a new bank account. As the scheme closes in January, it’s best to apply ASAP and be prepared to be patient!