An emergency funding scheme set up by the chancellor to funnel interest-free loans to small businesses has triggered a further flashpoint over banks’ rejection of funding applications by companies with private equity backers.
Sky News has learnt that a growing number of small and medium-sized companies (SMEs) part-owned by buyout firms are being told by lenders which have signed up to the Coronavirus Business Interruption Loan Scheme (CBILS) that they cannot gain access to it.
When pressed, some banks are informing SMEs that their turnover is above the £45m CBILS eligibility threshold on the basis of an aggregated figure comprising other businesses owned by the same private equity investor.
The stance has ignited fresh controversy over the scheme, which in the space of a fortnight has already been relaunched and triggered a furious blame game between the commercial lenders, the British Business Bank (BBB) and the Treasury.
Last week, Rishi Sunak, the chancellor, removed the requirement for banks to first assess whether SMEs are eligible for their other lending products before considering them for CBILS.
The new scheme provides interest-free and fee-free loans of up to £5m for 12 months, with a low-interest rate at the end of the period.
Sky News has seen an email to one small business from a manager at Lloyds Banking Group indicating that the bank would not lend in cases where the majority shareholder is a private equity firm.
Other high street lenders are responding to private equity-owned applicants in a similar way.
Sources close to Lloyds confirmed that it was adhering to the guidance provided by the BBB, the scheme’s administrator, which says: “CBILS is only available to businesses who have a turnover less than £45m.
“In calculating the turnover it may sometimes be necessary to consolidate to a private equity sponsor or venture capital investor.
“Provided that the shareholding by a PE sponsor or VC is less than 50% of the share capital or voting rights there is no need to consolidate [turnover figures, but if] the shareholding or voting rights are greater than 50% it may be necessary to consolidate if there is also dominant control of management exercised by the PE/VC investor.”
That stipulation has angered entrepreneurs who say they are among those being turned down for CBILS applications.
The latest row is significant because of the substantial chunk of Britain’s economy which is backed by hundreds of billions of pounds of private equity funding – much of it invested in companies with a turnover of less than £45m.
One investor who has seen a CBILS loan application rejected by a high street lender said: “These aren’t huge private equity-backed businesses.
“A sole individual owner of the same business is likely far more capable of putting short term funding into their business than a private equity owner.
“Companies and jobs will be lost, precisely the outcome trying to be avoided.”
In a statement to Sky News, Michael Moore, director-general of the British Venture Capital Association said: “As we understand, but not officially confirmed to us by the British Business Bank, the EU SME definition is being applied in its full-scope to eligibility for CBILS.
“We believe all businesses operating in the UK, including companies backed by private equity and venture capital, should have access to this support.
“Our analysis is there is legal flexibility available to countries in how they apply the SME definition, and we have very strongly urged the Government to use their discretion to ensure that CBILS is agnostic about company ownership or capital structure (except in relation to subsidiaries that are required under accounting rules to be consolidated into corporate accounts).”
Data published this week showed that funding delivered through CBILS doubled to £453m between last Friday and Tuesday evening.
Stephen Jones, chief executive of UK Finance, said: “The reforms to the scheme confirmed last week by the chancellor will help more viable businesses access the support they need.
“We continue to work closely with the government and British Business Bank to ensure this scheme works in the best way possible to get money to viable businesses that require it.”
Banks and social media platforms have been deluged with complaints from SMEs about the difficulty of getting through to their lenders to discuss CBILS since the scheme was unveiled by Mr Sunak.
Banking sources have been at pains to point out that with most bank branch networks closed and absenteeism at unprecedented levels because of the coronavirus outbreak, the industry has been working relentlessly to get the emergency loan scheme up-and-running.