New ‘Quick, Simple’ Business Loans Will Still Burden Restaurants With More Debt

Chancellor Rishi Sunak has confirmed the government will provide greater assistance to small businesses impacted by the COVID-19 pandemic in the form of new micro-loans, which will require fewer checks and eligibility criteria than the widely criticised Coronavirus Business Interruption Loan Scheme (CBILS).

These so-called coronavirus “bounce-back” loans are designed to offer what Sunak called a “simple, easy, quick solution” for those in need of sums up to the value of £50,000. While this is intended to provide short-term cashflow relief, for restaurants — who at this stage still do not know when, exactly how, or for whom they can reopen — it also offers more debt and future liability. Some say this delays, rather than fixes, the problem.

The announcement comes after a multitude of issues with the existing CBILS. A new survey carried out by trade body UK Hospitality has found that nearly half of all hospitality businesses have applied for a loan: 57 percent of those which had received a response have had applications rejected, while 53 percent of the total applicants are still awaiting a response.

Restaurants in need of short-term funds ought to find these loans easier to access — and the details appear to address some of the sticking points highlighted by those lobbying for the hospitality sector. The loans will require no forward-looking tests on business viability and no formal eligibility criteria, the chancellor said. This means applicants will have to show that their businesses were viable before the crisis, rather than outline their future viability after the crisis. Critically, the government will guarantee 100 percent on those loans and pay the interest for the first 12 months; Sunak announced that applications could made through the banks from 9 a.m. on Monday 4 April.

While in theory the new scheme should be more seamless than the CBILS, questions remain over whether the banks will be able to match this capacity; the government’s original plan didn’t work in large part because it was being administered ineffectively by over-stretched banks, many of which had been forced close high street branches, with increased demand on phone lines. For large numbers of those in the hospitality sector, a more general viability stigma has prevented them from getting even a hearing.

The problem for restaurants is deeper than the extent of the set of measures so far put in place. When announcing the new scheme yesterday, Sunak told a quiet House of Commons that the overall goal of the government’s economic strategy was to provide “a bridge over what will be a sharp and significant crisis.” The problem for the restaurant industry, whose new reality became much clearer last week, is that the legacy of the coronavirus crisis is likely to be more damaging than the pain felt in the last month. It is why it is so focused on securing a long-term rent deferral as well as greater clarity on any extension to the Coronavirus Job Retention Scheme (which despite its own problems) has given restaurants the ability to retain staff, but is due to expire on the 30 June. More debt, no matter how easy it is to access, will not save the restaurant industry on its own.

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