I have been working very hard trying to get a government backed “Coronavirus Business Interruption Loan” for the music festival. It has been like banging my head off a brick wall, with a huge batch of documents and accounts to be in your hands before you are permitted to smash your head. Before the pandemic really took hold, I had written about the challenge of making music festival finances work and the need, given infrastructure costs, to reach a certain scale to become viable. At that stage my main worry was how to maintain the non-commercial, community vibe as we expanded; selling the tickets was not proving problematic.
The pandemic has obviously been a huge blow to the entire live music industry and to festivals in particular. Very large amounts of both money and effort had already been sunk into this year’s festival, which is now unable to go ahead. We had, just to give one of scores of examples, built a new entrance to the estate to reduce traffic backing up on the roads.
A music festival is obviously very genuinely affected by the pandemic, so I did not imagine there would be trouble qualifying for the much touted government Coronavirus Business Interruption Loan Scheme (CBILS) for small and medium enterprises affected by the virus. We applied, and at the request of the bank produced records and a business plan showing cashflow going forward and how we would recover the financial position and repay the loan.
Last week we received a definitive rejection of our application from RBS/Natwest and I wanted to recount the reasons in detail to you, because they explain very well why the CBILS scheme has been a failure, which is going to cause a great deal of economic damage. I would add that I was dealing throughout with bank staff who really were lovely, and desperate to be helpful. Their computers kept saying no, but they did not relay that with satisfaction or indifference, and indeed went out of their way to alter the input to their computers again and again to try for a different answer. But the answer was ultimately no, and here is why.
The CBILS scheme specifies that is must be applied by the bank using the banks’ normal lending criteria – which were referred to as “policies” by the staff. The government guarantees 80% of the amount and has made available 100% of the funding, but as the bank is still theoretically 20% at risk, individual applications still have to be accepted by the banks’ underwriters as insurable. This was the rock on which our application continually foundered.
One individual phone call lasted over two hours with a “business manager” who was trying very hard to get the application through the underwriters. The application was being blocked by three bank “policies”.
1) There was an absolute bank policy against loaning for refunds to customers. We had explained this was one of the things that we needed the loan to cover.
2) A number of payments (deposits etc) made for this year’s festival were irrecoverable. These were therefore trading losses and it was bank policy not to loan to cover losses.
3) Going forward, we could give no guarantee that the festival would take place in 2021 or 2022 if coronavirus persisted.
To be plain, this was the government’s much vaunted CBILS scheme for which we were applying, which has the stated purpose of helping viable businesses survive coronavirus. Yet it is being applied by the bank in such a way as to rule out providing funds to cover losses directly caused by the coronavirus. To compound this ludicrous situation further, you cannot get a loan if there is a risk your business will be affected in future by coronavirus.
This particular manager had studied our accounts, business plan, sales growth and narrative and said that he accepted we had a good viable business plan going forward. He went to discuss the matter with his director. His director reinforced the refusal on all three counts, and added a fourth. The company, which was set up to finance the necessary expansion of Doune the Rabbit Hole, has been trading for less than two years and, like most startups, was yet to show any profit. We therefore would not be eligible on
4) Lack of profit history
The CBILS scheme has been supplemented by a special scheme for startups, “the Future Fund”, but this only applies to the Tech industry.
The friendly business manager told me that he had found the CBILS scheme particularly frustrating as it was not doing what it claimed to do. His sector was the hospitality and leisure industry, and the bank’s policies actively precluded him from giving loans where they were most needed. He said that the vast majority of CBILS loans he had seen granted were to larger established enterprises and were related entirely to covering their fixed costs – eg rents, mortgages, utilities, insurances etc. Large landlords have readily received loans from the CBILS scheme.
So I can tell you definitively that the government’s much vaunted Coronavirus Business Interruption Loan Scheme to “save” the country’s small and medium enterprises cannot be used to borrow money to cover in the short term any loss you are making due to coronavirus. You can only get the loan if you are a wealthy company that is not making a loss from coronavirus, does not actually need the loan, and could have got a loan under the bank’s own commercial lending criteria anyway. It is in short, like every Tory measure, a way of funneling government resources to the benefit of the wealthy.
The bank have referred us to the new “Bounce-Back” loan scheme, which is designed to address some of these issues with the CBILS scheme. In particular, it can help non-tech startups, with no need to show a profit for companies in their first three years of trading, and there is no exclusion for companies making a loss due to coronavirus. The problem is, that the loan limit of £50,000 barely scratches the surface of our immediate requirements. But the festival has always been a confection of community spirit and sweat; we will find a way to make it work. I shall let you know how the Bounce-Back application goes in due course.
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