United Kingdom / Coronavirus Insights
Steady Support: The Coronavirus Business Interruption Loan Scheme

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by Yusuf Allinson, Industry Analyst
Sep 28 2020

As the COVID-19 (coronavirus) outbreak gripped the UK population in March 2020, the government announced wide-ranging restrictions aimed at stemming the spread of the virus, which brought economic activity to a standstill. Shortly afterwards, the Chancellor, Rishi Sunak, announced a range of schemes to support businesses and employees, including the Coronavirus Business Interruption Loan Scheme (CBILS). The scheme was introduced by the Chancellor to provide financial support for small businesses affected by the closure of all non-essential establishments for several weeks. Under the system, small and medium-size businesses are allowed access to loans and other kinds of finance up to £5 million. The CBILS is open to the majority of businesses except bankers, insurers and state-funded educational institutions.

Regions and sectors

According to the government, the CBILS has provided £15.5 billion for over 66,000 businesses across the country. This funding has been crucial for businesses in industries where demand has been decimated due to lockdown restrictions. The scheme was initially due to close on 30 September 2020, but the Chancellor has extended CBILS until the end of November after further lockdown measures were announced in late September. In the announcement, the Chancellor extended the repayment period from six to ten years, aimed at cutting monthly repayments. 

The loans approved through commercial banks have been a success across the country, with London, the South East and the East of England securing larger slices of the funding.  The share of loan approvals in each area has been roughly in line with business activity in each region, with London and the South East receiving the highest number of applications.

Wholesale, retail, construction and manufacturing businesses secured more funding than other sectors. Prior to the pandemic, the wholesale sector was struggling with the trend of wholesale bypass while bricks-and-mortar retail stores were losing market share to e-commerce, and the pandemic exacerbated this trend. Manufacturers of motor vehicles and motorcycles were particularly affected. IBISWorld forecasts that revenue in the Motorcycle Manufacturing industry and Motor Vehicle Manufacturing industry will fall by 37.6% and 18.6% respectively in 2020-21. Consumer spending on discretionary products has decreased sharply as disruptions caused by the coronavirus pandemic have gripped the UK economy. Consumer spending was 36.5% lower in April 2020than in the same month in the previous year, according to Barclaycard data, representing the sharpest decline in five years. The wholesale and retail sectors have also been disproportionately affected by the pandemic, with revenue for the Clothing Retailing industry anticipated to fall by 27.5% in the current year. Eligible businesses in these industries applied for more CBILS funding than those other sectors, as a result a proposed end to government schemes is expected to lead to substantial job losses in these industries.

The construction market also tapped into the CBILS as firms sought funding to prevent the sector from crumbling. On-site construction work was halted by the majority of firms in order to stop the spread of the virus, while a sharp fall in new investment contributed to a significant decline in revenue in the construction sector. For example, the Commercial Building Construction industry’s revenue is set to fall by 25.1% in 2020-21. The industry has been significantly affected by the economic shock caused by the coronavirus outbreak, which left many firms in financial distress. Unsurprisingly, the construction sector accounted for 14% of loans granted through the CBILS between 10 May and 20 September 2020. A similar story emerges in the Residential Building Construction industry, with revenue set to fall by 29.3% in the current year, with recovery not expected until 2022-23. As a result, lending to these particularly affected industries is likely to be unprofitable in the short term and prone to defaults. A similar trend has emerged in industries that rely on a healthy construction market, including suppliers of construction materials and equipment. Revenue in the Construction Equipment Rental and Leasing industry is expected to fall by 15.4% in 2020-21.

Some sectors were lesser participants in the scheme, with some industries benefiting from coronavirus restrictions. A surge in online spending provided opportunities for couriers, providers of logistics services, and online streaming services, amongst others.  According to data from the Office for National Statistics, online sales accounted for just 18.1% of total retail sales in August 2019, with this figure rising to 26.6% in the same month in 2020. The Postal and Courier Activities industry's revenue is forecast to grow by 8.3% in 2020-21, while the Music Downloading and Streaming Services industry anticipated to register double-digit growth. As a result, applications from firms in these industries were comparatively low. Even as lockdown measures have been eased and retail stores reopened, there has been a fundamental shift in consumer behaviour which bodes well for the e-commerce sector. For example, in August 2020, Tesco announced plans to create 16,000 permanent jobs due to significant growth in its online business. Further lockdown measures announced in September are expected to exacerbate this trend, making firms in these industries better lending propositions.

Faster fintech

According to the British Business Bank, a government-backed bank charged with administering the CBILS and other funding, fintech lenders play a more important role in delivering funding to smaller businesses.  According to data from HM Treasury, financial institutions including fintech companies approved £47.9 billion of lending to over 1.1 million businesses through the government’s Bounce Back Loan Scheme. Fintech lenders streamline their processes and quickly implemented digital solutions to accelerate the process and approve loans within days, in contrast with traditional banks with more stringent processes. These lenders are anticipated to play an important role now that the CBILS has been extended to the end of November 2020 to support firms struggling to cope with further restrictions. However, the extension has revived concerns that up to 40% of bounce-back borrowers are likely to default, according to the Office for Budget Responsibility. For many small businesses, the interest-free status of these loans should provide an incentive, but many businesses believe they will be unable to make repayments as consumer spending falls.

New rules

As the number of coronavirus cases trend upwards and hospitalisations increase, the government recently announced new rules that restrict opening times for pubs and bars and scrapped plans for crowds returning to sporting venues. The latest restrictions, which could last up to six months, will take a sizeable slice of revenue from affected firms, which will accelerate job cuts, resurrect cash flow issues and result in a stumbling recovery. The end of the CBILS and other associated schemes, such as the government’s Coronavirus Job Retention Scheme, is anticipated to result in an increase in UK unemployment and place a significant number of industries in the high-risk category when lending decisions are made. As UK economic activity shrinks, industries with a coronavirus-adjusted capacity are anticipated to struggle in the short term as revenue declines. Overall, lending terms will become more stringent after government involvement is withdrawn, with many businesses uncertain when demand will return to pre-pandemic levels. 


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