The Institute of Directors has called on Government to improve and widen the scope of coronavirus finance available to small and medium-sized firms, revealing new figures that suggest many businesses are reluctant to engage with the current loan system (CBILS).

In a survey of almost nine hundred SME business leaders, almost half said CBILS wasn’t suitable for their organisation right now. A further 25% felt they weren’t eligible for the loans. Around 14% had so far directly engaged with the system, including the 2% that have had their application rejected.

Business leaders polled highlighted complex application procedures, such as needing to provide detailed forecasts, and lengthy processing times, often taking weeks rather than days, as key factors limiting engagement with the system. Commenting on the figures, Kevin Hollinrake MP, chair of the APPG on Fair Business Banking, argued that ‘improvements must be made quickly.’

Those surveyed were more likely to reduce operational costs or make redundancies first, rather than take on external finance if they had to improve their financial situation.

The IoD set out a number of potential options to improve the effectiveness and appeal of the loan scheme to ensure more businesses are able to make use of it, including:

• The Government should update the viability criteria with a consistent and transparent affordability standard, as some CBILS lenders are applying stricter standards or require more paperwork.
• Extend the Government-backed guarantee to 100% for small businesses, and consider extending the loan repayment period.
• Accredit more lenders, particularly specialist non-bank lenders.
• Create a liquidity facility for accredited non-bank lenders to borrow funds to expand their lending to SMEs.

The IoD also called for other measures to help firms that are less able to access CBILS, including:

• Explore extending government-backed overdraft facilities for small businesses.
• Develop a “Resilience Fund” to extend grants to micro-businesses that do not have ample access to support through existing schemes (e.g. due to CBILS rejections/ineligibility, partial income support, or small firms without premises).

Tej Parikh, Chief Economist at the Institute of Directors, said:

“The Government’s coronavirus loan scheme still isn’t firing on all cylinders for business, despite the recent uptick in lending. Without significant changes soon, its ability to keep companies afloat through this period will be limited.

“The loan scheme is crucial to ensuring the Government’s wider economic support can be effective. The furloughing scheme is vital to prevent job losses, but it can’t operate if companies are forced under. There are currently too many administrative hoops for business leaders to jump through, money needs to be getting into their accounts far quicker.

“Directors are understandably reluctant to take on debt when there’s little light at the end of the tunnel. In some cases, targeted grants may be the only viable solution to keeping firms going.”

Kevin Hollinrake MP, Chair of the APPG on Fair Business Banking, said:

“Throughout the crisis, the Chancellor has been willing to listen to feedback and adapt the Government’s economic response. The Treasury���s loan scheme has started to make some headway, but for far too many businesses it’s still not delivering on the ground. To ensure the scheme fulfils its objectives, improvements must be made quickly, or countless small firms will be left out in the cold.”