The Development Bank of Wales has seen its application to be a lender under a flagship 海角视频 Government coronavirus loan scheme to hard-pressed firms rejected.
The British Business Bank, which administers the Coronavirus Business Interruption Loan Scheme(CBILS), as well the Bounce Bank Loan Scheme and the Large Business Coronavirus Interruption Loan Scheme, said it couldn’t accredit the Development of Wales, which is wholly-owned by the Welsh Government, because its funding from state-owned sources exceeded the required threshold.
The development bank’s application to be a CBILS lender with the British Business, the economic development bank of the Westminster government whose funding through financial services intermediaries such as banks applies to Wales, was lodged on April 6th. It took two months to reject the application.
Economy Minister Ken Stakes said he was “extremely disappointed” with the decision saying that the British Business Bank has failed to set out the state ownership funding criteria at the start of the process.
However, he confirmed that discussions will now be held with accredited CBILS and Bounce Back Loan providers, that include all the high street banks and challenger banks such as Starling and Metro, to see if development bank Covid-19 loans could be refinanced with them.
This would free up significant capital for other business support measures in Wales. Under its Covid-19 loan scheme the development bank has to date seen around 1,000 firms drawing down around £83m in repayable low interest finance.
There is also potential to refinance its other significant non Covid-19 loan book.
The development bank's bid was rejected as it required at least 30% of its funding to be from non-government sources. The development bank’s funding is a mixture of Welsh Government and European Union funding, alongside £10m of mandated funding from the Clwyd Pension Fund.
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Under CBILS the 海角视频 Government has provided a 80% guarantee in the event of loan default, with lending of up to £5m to SMEs.
The development bank’s Covid-19 £100m scheme carries a 2% interest rate, with a holiday for the first year and then being rescheduled in the remaining five years of six year loan terms.
Firms have to be at least two years old to secure funding of up to £250,000, for which 20% personal guarantees from directors of firms are required. CBILS doesn’t have a personal guarantee requirement. The 海角视频 Government is financing the first year of interest under CBILS.
If the development bank had been accredited it is unclear whether it could have retrospectively applied CBILS conditions to funding already drawn down. However, it would have applied to other funds it manages.
Ironically, Development Bank of Wales subsidiary, FW Capital, was accredited last month as a CBILS lender under its various Northern Powerhouse managed funds for firms in the north of England. Those funds are backed with state funding from the EU and the British Business Bank itself.
Mr Skates said: “I am really disappointed that the Development Bank of Wales has not been accredited as a CBILS provider by the British Business Bank. The application was rejected, along with many other applications, on the basis of criteria which was not communicated to such institutions by the British Business Bank at the point of application and a particular part of the criteria relevant in this regard concerns the need for at least 30% of funds to come from non-government sources. Of course as a development bank that is simply not possible.”
Mr Skates confirmed that the £80m-plus already drawn down by a 1,000 SMEs in Wales under the development bank’s Covid fund, could be refinanced with other accredited CBILs and Bounce Bank Loan lenders which now total more than 70.
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There is also the potential to refinance the development bank's non Covid-19 loan book. This potentially could see it seeking to offload its entire existing book to a financial institution through a competitive bid process. Both approaches would provide significant new financial firepower aimed at supporting the post pandemic economic recovery in Wales.
Mr Skates said: “I can confirm we are in close discussions with the development bank with regard to the recovery period with regards to potentially refinancing funds to make available more money to businesses in the autumn of this year, and particularly aligning additional support from the development bank with the tapering off and ending of furlough and self-employment support schemes.
"We are looking at every opportunity to refinance the funds that the Development Bank of Wales operates and I will be speaking with high street banks later this week.”
A spokesperson from the Development Bank of Wales said: “On Monday 6th April we submitted an expression of interest to become an accredited lender under the British Business Bank’s CBILS scheme. Unfortunately, on the 5th of June, we learned that we would not be invited to progress our application further.
"In correspondence, it was explained that the scheme can only accredit funds where at least 30% of the capital to be deployed has come from sources other than those under government control. This made our existing debt funds ineligible.
"Whilst we are disappointed not to offer these preferential terms to our customers, we look forward to working with the British Business Bank in the future. Our immediate priority is to continue working closely with the Welsh Government to support the SME community as the Welsh economy recovers from the coronavirus crisis.”
Professor Dylan Jones-Evans, who has ben leading a campaign to get support for new businesses in Wales, said: “Whilst the Welsh Government moved quickly in March to use its funding to support businesses, some said it moved too quickly and replicated schemes such as the Bounceback loans, which would have been covered by the 海角视频 Government.
"Given this, I see no reason why it could not now work with the high street banks in Wales to potentially transfer millions that the Development Bank of Wales has given out in loans and which are guaranteed by the 海角视频 Treasury. This would release funding for the both Welsh Government to help - and for the Development Bank to provide low cost loans to businesses as we come out of recession."
The British Business said: “The Treasury has made two new changes. The first change is that CBILS accreditation will not be granted if there is direct government involvement in the investment decision making processes of that fund.
“Secondly, in relation to the financial composition of lending capital available to that fund, accreditation will now only be considered if at least 30% of the fund’s capital is from sources other than those under government control.
"This new ruling defines ‘under government control’ as being either from 海角视频 central government, devolved administrations, local authorities, current European Regional Development Funds (ERDF) and the legacies of previous ERDF and other public sector funding programmes.”
The British Business Bank said that the Northern Powerhouse funds, where fund managers have been accredited, had more than 30% of non government financial sources.
They were asked to clarify if the backing of the European Investment Bank, which is owned by various states, was counted as a non-government funding source for the Northern Powerhouse funds.
Latest figures show that 910,000 firms across the 海角视频 have now had approved lending of £38.2bn under the three coronavarius loan schemes.
Based on the Welsh business population in relations to the 海角视频 as whole, that would represent approaching £2bn of backing for firms in Wales.