The Welsh Government has no plans to drop a condition of company directors having to provide 20% guarantees for its £100m Covid-19 emergency loans scheme, which has received 1,500 applications since being launched just over a week ago.
However, despite being encouragingly oversubscribed, that doesn't mean that £100m in the Covid-19 Wales Loan Scheme has gone out of the door to firms. Some of the applications for the fund, administered by the Development Bank of Wales, will be rejected and it will take time for the total amount to filter through.
To date 164 applications have been approved with a total value of £10m (10% of the fund).
First Minister Mark Drakeford launched the scheme on March 30 as part of the Welsh Government’s £500 Economic Resilience Fund to support businesses in dealing with coronavirus outbreak.
The Development Bank of Wales, which is wholly-owned by the Welsh Government, has no plans though to ditch a condition of firms having to provide 20% guarantees against loans.
It comes after the British Business Bank administered Coronavirus Business Interruption Loan Scheme (CBILS), lent via high street banks, last week dropped its 20% security position on lending up to £250,000. It followed widespread criticism from firms and business organisations, resulting in a new agreed position between the Treasury and banks.
The development bank's scheme provides funding of up to £250,000 fixed at 2% interest, which along with capital repayments are being deferred for a year.
Security taken is a 20% personal guarantee to a maximum of £25,000 for all investments and for deals over £100,000 a debenture will also apply.
Many start-up firms will not be able to apply for funding, as companies need to be trading for at least two years.
Many of the firms seeking finance will be known to the development bank team.
The Welsh Government could provide a guarantee of 100%, particularly as the £100m is their own finance and is managed on its behalf by the development bank. This could be applied retrospectively to those firms which have already provided security.
Firms in Wales are also entitled to the loans under the British Business Bank scheme.
In a statement the development bank said: "The £100m Covid-19 Wales Business Loan Scheme does not benefit from the 80% guarantee provided by CBILS to other lenders.
"To secure a small degree of protection for public funds and reflect the favourable terms on which the loans are offered, a personal guarantee of 20% up to a maximum of £25,000 is required.
"Unlike those taken by other lenders the Development Bank of Wales does not take principal private residences as security to support a personal guarantee.
“Since last Monday when the scheme was announced we have seen exceptional demand and have moved all parts of the business to process loans and offer a lifeline to as many small businesses as possible.
"With the support of the Welsh Government, we have reacted quickly, however our scheme will not be sufficient to meet the entire need and so we welcome the updates by the British Business Bank and call on the high street banks and others to maximise access to CBILS.
"We sincerely hope that mainstream lenders now act on their responsibility to support Welsh businesses.”
On the huge number of applications for the £100m fund, Economy Minister Ken Skates, said: "The Development Bank’s loan scheme has been absolutely crucial in helping businesses facing financial difficulties as a result of the coronavirus outbreak.
"The level of demand in just over one week is clear proof that this was the right product at the right time.
"Whilst DBW would normally expect to complete around 400 investments over the course of a year, in little over a week they have received a staggering 1500 applications.
"I will be writing to the Chancellor calling on him to respond and learn from the success of the scheme and to release more funding so that we can launch a second phase of DBW support.
“It’s also absolutely vital that the Ƶ Government put more pressure on providers of the Business Interruption Loan Scheme to get money out of the door and into the pockets of businesses. It is taking far too long to reach many firms and deliver exactly what’s needed in a time of financial crisis.
"I’d like to thank the Development Bank of Wales. The entire team are doing all that they can, as quickly as they can to process the unprecedented volume of applications for funding. Whilst this loan scheme is fully subscribed, the Development Bank continues to offer a range of funding opportunities to the business community.”
Welsh Government is currently working on the criteria for its £400m of grants under the resilience fund.
It is not known if non VAT registered businesses, the backbone of the foundational economy, will be entitled to support.
The grants, based on demand, will include those to micro-businesses, charities, right up to larger employers. Details are expected later this week.
