The new coronavirus emergency loans scheme announced as part of a £500m package of business support by First Minister Mark Drakeford earlier this week, will not be available to most start-up firms.
As part of a the £500m Economic Resilience Fund, on top of £1.4bn of business support measures announced last week, it includes a £100m new fund that will be run by the Welsh Government’s investment bank subsidiary the Development Bank of Wales.
The fund is for limited companies, partnerships and sole traders and will provide loans up to £250,000 fixed at 2% interest - the lowest the development bank had previously gone was 5%.
There will be no arrangement or monitoring fees. Applicants will need to demonstrate that they were able to service the level of debt prior to the coronavarius outbreak.
Moreover, directors of firms will have to provide 20% personal guarantees to a maximum of £25,000 and for amounts over £100,000, a debenture will also apply.
The development bank will waive capital and interest payments for the first year. Repayment will be over six years.
However, firms will have to be trading for more than two years to be eligible. As a result the majority of start-ups in Wales, defined as being trading for no more than three years, will not be able to secure loans.
Professor Dylan Jones-Evans, founder of the Wales Start-Up Awards, was critical at the lack of support for new businesses. He said: “Whilst more funding for businesses is to be welcomed, it’s enormously disappointing that, yet again, there has been a failure to support those entrepreneurs who have recently started up their own businesses here in Wales.
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"With over 17,500 new Welsh firms set up in 2019, it is clear that many will find it difficult to continue without the right level of financial assistance despite being those businesses that are likely to be job creators of the future when this crisis is over.
“Unlike other businesses and the majority of the self-employed, there seems to be little support to help these start-ups through the current Covid-19 pandemic and I would urge both the 海角视频 and Welsh Governments to reassess their current provision to ensure that these start-ups are given the right support to survive over the next few months.
"At the very least, every start-up should be eligible for the new grant scheme being made available to micro-businesses in Wales via the Economic Resilience Fund."
Firms in the gambling, pornography, munitions and tobacco sectors are exempted from the fund.
On the start-up threshold, the development bank said: “Other schemes exist to support start-up businesses such as the Start-Up Loan fund offered by the British Business Bank. This is a limited fund which offers support on favourable terms to businesses who can demonstrate an ability to repay this level of debt once normal conditions return, based on historic performance.”
The development bank was asked what was the purpose of creating a specific loan scheme for Wales, when £330bn of emergency loans, partly administered by the British Business Bank and provided through high street banks, is already in place following last week’s announcement from Chancellor Rishi Sunak. Loans can be made to firms in Wales with funding of up to £5m, providing annual revenues don’t exceed £45m.
It said: “The loan scheme will work alongside the 海角视频-wide Covid Business Interruption Loan Scheme (delivered via a network of lenders approved by the British Business Bank), other Welsh Government and 海角视频 Government support offers, providing more vital options for Welsh businesses.”
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On the required 20% personal guarantee position it said: “Personal guarantees are limited to 20% of the value of the loan and capped at £25,000. The Development Bank of Wales are accepting the majority of the risk on the loan if the business fails.
"It is important that directors are responsible for a small percentage of the loan to ensure they are fully committed to the business and limit the risk of misuse of public money.
“The Development Bank of Wales does recommend that businesses exhaust all other avenues of support before applying for a loan as some of the other measures may be more suitable.
"Circumstances in which a business may consider applying for this scheme rather than the Covid Business Interruption Loan Scheme include an inability to access support through a participating lender or where a business is unable to access support through the scheme in the time frame required by the business."
The Welsh Government, as part of the £500m Economic Resilience Fund, has also set aside £400m in grant support to firms from micro-businesses and charities to larger employers.
The eligibility for the new grants have yet to be published, so it is not known as this stage whether starts-up will be entitled.
Minister for Economy, Transport Ken Skates, said: “The Covid-19 crisis continues to affect our economy at an extraordinary pace.
“This £100m loan scheme through the Development Bank of Wales is an absolutely vital part of the £500m Economic Resilience Fund we have just announced and will be crucial in supporting companies experiencing cash flow problems as a result of the pandemic.
“The Welsh Government is absolutely committed to helping businesses deal with the economic impact of coronavirus – and we are responding with an unprecedented package of support for an unprecedented time.”
Giles Thorley, chief executive of the Development Bank of Wales, which has its HQ in Wrexham, said: “Covid-19 is seriously impacting the lives of every individual in the country and damaging our prospects. We must do all that we can to protect our small and medium-sized businesses who are the lifeblood of our economy in Wales.
"With the Welsh Government, we have moved quickly and decisively to make this fund available to support businesses through these challenging times.
“A range of financial and other support measures have been announced by the Welsh and 海角视频 governments in recent weeks and I would encourage small business owners to review all options available and where possible take advice.
“It’s a long road ahead but with the right support from government and the Development Bank of Wales, we can all play our part in keeping the businesses safe, safeguarding jobs and protecting those that are most vulnerable to the economic downturn."
Applications can be made online via the Development Bank of Wales’s .
Each business can make just one application and the loan amount will be limited based on the number of people employed by the business or a calculation based on profit or turnover. The Development Bank has mobilised all teams to respond to demand and applications will be processed as quickly as possible.