It’s tough out there for businesses. As the coronavirus pandemic draws on and the UK is hit by its first recession since the 2008 financial crash, keeping your venture afloat might be more difficult than usual. For many entrepreneurs and business owners, the prospect of a hard winter has been dulled by the offer of help from the government, with the introduction of the Coronavirus Business Interruption Loan Scheme (CBILS) making it easier for small businesses to benefit from state support.
Whilst bounce back loans and the CBILS are all well and good, however, there’s one dedicated class of workers and innovators who risk finding themselves without access to support – our freelancers and contractors. With complicated earnings structures and products that are often considered intangible, some sole traders and solo workers might be unsure of whether they qualify for help from the government whilst not knowing where else to look for a financial boost.
Here we look at what’s on offer for embattled UK businesses, and whether gig economy workers can get the help they need to survive the pandemic.
What is the CBILS?
The Coronavirus Business Interruption Loan Scheme (CBILS) is a government initiative aimed at helping businesses to access money to overcome disruption caused by the coronavirus pandemic. With over 57,000 businesses having benefited from a combined £12.6 billion via the scheme as of the end of July 2020, CBILS is one of the most ambitious government-backed enterprise support projects of recent times.
With continual updates being made to the scheme’s criteria as the pandemic wears on, even businesses with fewer than 50 employees and a turnover of less than £9million that are classed as ‘undertakings in difficulty’ can now apply for funding under CBILS – meaning that ventures with high levels of debt may be eligible.
What are the criteria for CBILS loans?
Intended to help small and medium-sized businesses (SMEs) to access loans of up to £5 million, the CBILS sees the government guarantee 80% of the finance amount to the lender and even pays the interest and any fees for the first 12 months of the loan.
To be eligible, a business must:
- Be based in the UK
- Have an annual turnover of up to £45 million
- Be able to show that it would be viable if not for the pandemic
- Have been negatively impacted by the coronavirus pandemic
To show that a business meets these criteria, it’s necessary to provide evidence to the lender selected from the more than 50 that are participating in the CBILS scheme. Documentation required might include management accounts, a business plan, cash flow forecasts, historical accounts and details of any assets held by the business. Similarly, the lender will also check that the loan is being taken out for a “suitable” business purpose and that it is the right type of finance for the borrower.
Whilst there’s no doubt that the scheme itself is a positive step for UK businesses, it’s clear that it is primarily intended for businesses that operate to a traditional model – something that is not compatible with many working on the modern gig economy.
Are freelancers eligible for CBILS?
Even if you pass the basic criteria, this is where the CBILS scheme gets tricky. To be eligible for a loan under the scheme, sole traders and freelancers will need to have a business account and not simply be operating via a personal bank account. For many freelancers, this is something that simply doesn’t compute – particularly given that business bank accounts can be expensive to run and maintain.
To complicate matters, lenders are expected to use ordinary pre-pandemic measures to determine whether a CBILS loan is appropriate for any given borrower and whether it will enable them to trade out of any economic difficulty. For freelancers and sole traders, this could be a difficult standard to reach since pipeline work is often difficult to predict and even harder to quantify to a bank.
What are the alternatives?
If for any of the above reasons you don’t qualify for a CBILS loan or have already been rejected, don’t panic. There are alternative ways to get your hands on money that can generally be used for all manner of purposes – even if it does mean that the government will not guarantee your borrowing for the lender.
Finding the right personal loan can be difficult, but by using a reputed online broker such as Little Loans, applicants could find themselves matched with the direct lender who is most likely to approve their loan in just moments. With flexible repayment periods and far less scrutiny regarding whether the ‘business purpose’ for the loan is suitable, you could access much-needed cash to not only prop up your freelance business but also to support yourself and your family through these difficult times.
Just as the CBILS scheme has now been opened to ‘undertakings in difficulty’, so too can you access a short-term personal loan if you have a less than perfect credit history. Bad credit loans are available to borrowers in the UK, and for many direct lenders what matters more is whether your current financial situation lends itself to making repayments.
Keeping calm during COVID
The coronavirus pandemic has presented unique challenges to all businesses, from the largest corporations through to the punchy one-man-band sole traders. Whilst the CBILS scheme offers a lifeline to many enterprises up and down the UK, it’s worth keeping in mind that there are alternatives available – including those for borrowers with bad credit scores.
