Credit, Collections & Insolvency News
The Government has announced a new Covid-19 business loan scheme as part of its budget announcement. The new scheme called the Recovery Loans Scheme replaces the Bounce Back Loan and Coronavirus Business Interruption Loan Scheme, which have paid out nearly £73 billion to British businesses.
The Recovery Loan Scheme will launch on 6th April 2021, following the closure of the current Covid-19 debt schemes – the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Bounce Back Loan Scheme (BBLS) – on 31 March 2021. The Recovery Loan Scheme is scheduled to run until 31 December 2021, but this is subject to review.
The new scheme aims to help businesses affected by Covid-19 and can be used for any legitimate business purpose, including managing cashflow, investment and growth. It is designed to appeal to businesses that can afford to take out additional debt finance for these purposes.
Details of the scheme include:
Catherine Lewis La Torre, Chief Executive, British Business Bank, said “The Chancellor has confirmed the British Business Bank’s central role in the next phase of the UK’s economic recovery from Covid-19. As businesses begin to plan for the post-Covid period, they will need targeted finance to support them. We welcome today’s announcement of two new schemes, one to provide debt finance to a broad range of businesses, and the other to invest equity alongside the private sector in fast growing innovative firms. Both schemes will help drive the innovation and growth needed to support the UK’s long-term prosperity.”
The new loan scheme comes in addition to a £5 billion restart scheme offering grants to help retail, hospitality and personal care businesses reopen from April.
Commenting on the announcement of a new business loan scheme. Matthew Cox, Managing Director EMEA, Fraud, Security & Financial Crime, at global analytics firm FICO welcomes the news but urges that the checks on the new scheme are considerably stronger than they were for the scheme introduced at the height of the first lockdown last year.
“When the bounce back loan scheme was set up, the government rushed to roll it out because they needed to, and they didn’t put all the normal controls on loans at the bank level. As a result at the end of last year the fraud was estimated at 15-26 billion pounds. It may only be when banks start to attempt to recover the debt later this spring that the true size of the problem becomes clear.”
“We would urge government to require banks operating the scheme to apply much stronger fraud checks than was the case last year.”
“Ahead of the closure of the first loan scheme it would also make sense to get on top of the potential fraud problem. Network analytics could be used to identify potential fraud across all the applications already made. It would be too late to wait until the payments are due to start.’
“Using advanced link analysis, all the connections between loans, like common phone numbers or company names or addresses, could be found. Banks should get all the data together, use the analytics to find everyone who made more than one application, put all those into a bucket, then start contacting them. The money may be gone, but no one can abscond with it, they can’t even leave their house! Then run some first-party fraud definitions on the rest, and tell the suspicious accounts, “I need to talk to you.” Automated notifications like SMS and App Push could be used for account holders that have made an application. Plus the government should consider having a consolidated collections process across the banks that made the loans.”
“As the new loan scheme is launched, it is critical that this doesn’t add another cost to the ever-increasing taxpayer bill.”
Commenting on the £100m investment in the HMRC taskforce announced by the Chancellor in today’s Budget, John Dobson, CEO at AML specialists SmartSearch, said “This is a positive announcement by the Chancellor and more than 1,000 new investigators may go some way to recouping the £billions which have been lost to fraud over the past 12 months of the coronavirus crisis.
“There’s no doubt that extra resources are much in need, particularly as the Chancellor has also announced a new Restart fund for businesses to replace the Bounce Back loans, which was wide open to fraud.’
“But it’s also vital that a significant amount of that £100m investment goes into the systems used by HMRC to find those responsible for fraud. Without the use of the latest digital platforms to run ID checks and verify information on a global scale, these investigators will be in danger of just becoming busy fools.”
Mike Haley, Chief Executive at Cifas, said “The introduction of a Taxpayer Protection Taskforce recognises the scale of attack that public funds have been under since the beginning of the pandemic. We’ve seen soaring levels of fraud reported recently, with over 300,000 cases filed to the National Fraud Database in 2020. This new taskforce will play an important part in identifying where criminals have taken advantage of important stimulus initiatives, and helping to ensure that public sector money goes to where it is really needed.”
‘Introducing the Restart Grants and Recovery Loans to stimulate the High Street will be welcomed by businesses that continue to struggle as a result of the pandemic. However experience tells us that fraudsters are quick to use these opportunities to steal much-needed funds, and so it is crucial that the Government is taking necessary steps to ensure that public money doesn’t fall into the hands of fraudsters – including carrying out fraud checks.”
“Councils are once again being asked to administer the new package of support to businesses. I would urge all those involved to review their processes, to ensure that the speed of processing applications is appropriately balanced with measures to detect and prevent fraud, such as by checking against all available data sources so that grants will reach their intended recipient.”
“If these financial measures are to be amongst the last made available directly to businesses to help them recover from the pandemic, we can say with certainty that fraudsters will be targeting them.”
David Postings, Chief Executive of UK Finance said “The UK’s banking and finance industry remains committed to helping businesses of all sizes through the crisis and has already delivered an unprecedented level of support to firms. This includes nearly £73 billion worth of finance provided through the Government-backed loan schemes to almost 1.6 million businesses, as well as a range of additional measures, including overdraft extensions and capital repayment holidays. With the current Government-backed schemes coming to a close, we welcome the announcement of the new Recovery Loan Scheme to help businesses continue to rebuild and will be working closely with the Government and lenders on delivering it.”
“As focus now turns to economic recovery we know that many firms are still facing high levels of uncertainty and the industry will continue supporting businesses through the next phase of the pandemic.”
Federation of Small Businesses (FSB) National Chairman Mike Cherry, said “This Budget will help many small firms with their final push through to September, but there is little here to aid job creation or help people return to work. Ensuring the newly self-employed can now access support marks a big step forward – we’re pleased our campaign has been heard – but directors, who appear to have been left out yet again, will be incredibly disappointed.”
“Thousands of small businesses are on the brink of collapse and thousands more are suffering from low confidence as cash reserves dwindle. They will welcome both the extension of flagship support schemes that have kept them going over the hardest year they have ever faced, as well as confirmation of new support measures around taxation, employment and cash grants.”
“The continuation of business rates and VAT discounts is critical, and it’s important that those in supply chains benefit from them, not just those that neatly fit the definitions of frontline retail, leisure and hospitality. The new super deduction option sounds very promising, and we look forward to further detail on the investments it will cover – it should be made accessible to the smallest firms. Confirmation of pre-announced measures like Help To Grow on management and digital skills, and Restart cash grants, are welcome, and it’s key that the very smallest firms benefit from them.”
“That said, while the furlough extension is much-needed, small employers are still struggling due to high national insurance contributions and the removal of the job retention bonus. The Government should look again at these areas. Fundamentally, there was very little in the statement on job creation and reducing the cost of employment.”
“The Chancellor’s commitment to ruling out tax rises until the recovery is underway is the right one. Hikes on those who can bear it the least, with modest profits and large amounts of debt, are self-defeating. The reintroduction of a small business corporation tax rate with a taper is good to see. The taper must be at a reasonable level, especially as directors of small companies have not received a penny in income support.”
“It’s important that adjustments to a tax regime that already weighs substantially on the smallest firms are informed by small business expertise. A lot will hinge on the tax announcements due later in March, and the much-needed, delayed downward review of business rates.”
“There is now a question of how we help small firms with substantial debt – a student loan model for repayments and support to adopt employee ownership both mark constructive ways forward.”
“Maintaining the £85,000 threshold for VAT registration is positive. However, it will not resolve the bunching issue, where firms near that turnover level and stop growing. We hope policymakers will look again at the OTS’ proposal for a smoothing mechanism.”
“While a visa that works for the highest-skilled is important, we would also encourage the Home Office to look closely at where skills gaps exist in the wider economy, not least our vital care sector.”
“Company directors will be extremely disappointed to see that they have been left out in the cold yet again. There is still time to fix this entirely solvable gap in the business support landscape and we hope policymakers will take forward the proposals we’ve drawn up with experts in this field.’
“A lot of small firms and sole traders that start to work in the summer will not be paid a penny until the autumn. The Government must reinvigorate its mission to end our late payment crisis, a mission which has been eclipsed for too long.
“Support measures should continually evolve. The challenge over the summer, and leading up to the autumn statement, will be to switch focus from survival to growth. We look forward to working with policymakers on that progression.”
Chirag Shah, CEO, Nucleus Commercial Finance said “SME owners across the country have been longing for a clear road map out of lockdown. Today’s announcement by the Chancellor combined with the recent lockdown exit strategy will provide businesses with a glimmer of hope, and give them the additional lifelines they need to survive.”
“With our own research showing that seven in 10 business owners were calling for a furlough extension, today’s announcement comes as welcome news to all. Combine this with an extension of business rates relief, this will provide a significant boost to those in the hospitality and retail sectors.’
“These measures will undoubtedly help SMEs in the short-term, but now the government needs to create a long-term environment where businesses can prosper. For too long, businesses, particularly those on the high street, have faced tough measures, including increased rents and high business rates. Looking ahead, we need a system that will reflect the new world we live in, one which supports SMEs and allows them to thrive.”
Philip Munn, Partner at RSM, said “As expected, the Chancellor has decided to extend the temporary reduced rate, which will remain at 5 per cent until 30 September 2021. The surprise is that this will then be followed by an interim VAT rate of 12.5 per cent which will apply from 1 October 2021 and run until 31 March 2022 when the 20 per cent rate is expected to be reinstated. This is very welcome news for leisure and hospitality businesses who will continue to benefit during what is likely to be a long and drawn out reopening of the industry from the government’s planned date of 21 June 2021 but is expected to cost the Exchequer over £4.7billion and could create systems challenges for some businesses that have another VAT rate to apply. There was also good news for pubs and restaurants with a freeze on alcohol duties.”
Jonathan Geldart, Director General of the Institute of Directors, said “This Budget delivers a solid platform for many businesses to relaunch as the economy reopens.”
“The extension to the furlough scheme will provide a vital cushion to support jobs as restrictions unwind and firms begin the costly process of rescaling. Restart grants and ongoing business rates relief give a cashflow boost to many firms that will struggle to make full productive use of their properties as restrictions linger. Widening income support for the self-employed is a step forward, but the Chancellor missed a trick by not providing grants for company directors who continue to be left out in the cold.”
“The Chancellor’s efforts to combine life support for the economy with measures to turbocharge growth is the right call. Vouchers for SMEs to invest in technology, and provisions for management training, will help address the UK’s longstanding productivity problems whilst also boosting businesses’ ability to bounce back from the pandemic. The recovery loan package will offer a helping hand to many firms, but more needs to be done to catalyse equity investment in our cash-starved start-ups and scale-ups.”
“Retraining and rehiring will be uplifted by reforms to the apprenticeship levy and further financial support for both apprenticeships and traineeships. An improved visa route for the high skilled will foster innovation, as will steps to review R&D tax credits.”
“The prospect of higher taxes will no doubt bite for many firms that are still tending to wounded balance sheets. Delaying and tiering the the corporation tax rise is a pragmatic approach, though adjustments to the plan should remain on the table as a clearer picture of the recovery emerges. Overall there is much for businesses to get behind in this Budget, and the Treasury should remain prepared to extend support if the roadmap goes off course, whilst building on its stimulus package today to drive long-term growth well beyond our immediate recovery.”
Todd Davison, MD of Purbeck Personal Guarantee Insurance said “The new, Recovery Loan Scheme is welcome but comes with some very big catches, chief of which is a Personal Guarantee for loans over £250,000 which puts the business owners/directors’ personal assets, excluding their home, at risk if the business fails. Our concern is that only around 4 in 10[v] small business owners understand what a Personal Guarantee is so there needs to be much greater awareness of the risks and how to mitigate them.”