The marketing industry is calling on banks to rethink their approach to handling Government-backed Covid-19 emergency loans following reports that they are demanding personal guarantees – putting assets at risk – for some business owners to get access to money, while other owners are being forced to take up different products with huge interest rates.
The move means owners have to take on the majority of the risk if they default on payments for Coronavirus Business Interruption Loans (CBIL), rather than the banks or the Government. While it is thought business owners’ main homes will be protected, other assets such as “goods and chattles”, personal savings, shares and second properties could be seized and sold.
One bar owner in Hackney, East London, told the BBC’s Today programme that when he asked his bank about the Government’s scheme, he was offered something quite different.
Alex Harris of Behind This Wall said: “The Government-backed loans are from £25,000 up to £5m. We got offered a financial product of theirs, another loan which is not part of the coronavirus package. It’s for up to £24,999, but will come at up to 22% interest, which would initially bankrupt my business.”
Harris said he was being asked to borrow against his house and questioned why he was being asked to do so, “faced with this level of uncertainty”.
While many companies operating in the data-driven marketing industry are owned by multinational groups, and therefore have greater protection, there are just as many who are independently owned, from data businesses and suppliers to agencies and mailing houses.
The DMA, which has more 1,000 member organisations, has now waded into the debate.
On LinkedIn, DMA managing director Rachel Aldiglieri posted: “Many of you will have been counting on the Coronavirus Business Interruption Scheme announced last week to secure cash flow to help your company survive the current crisis.
“We’ve heard that some banks are being quite difficult, including charging high interest rates after the initial 12 month no interest period and often requiring personal guarantees from company owners.”
Yesterday, the DMA met officials from the Department for Digital, Culture, Media & Sport to air its concerns.
In a statement released today, DMA chief executive Chris Combemale, said: “When the CBIL scheme was first announced, many of our member organisations across the UK were hopeful. They believed, like us, that the scheme would provide the essential cashflow required to survive the current crisis.
“The businesses we’ve spoken to expected the 80% guarantee to mean just that. For instance, a loan of £100,000 would have 80% guaranteed by the government without the small business owner needing to guarantee the loan personally. However, that doesn’t appear to be how many banks are implementing the scheme.
“None of the SME member businesses that we’ve spoken to would be able to accept a loan on the terms banks are currently offering. Instead, many would be forced to choose insolvency, leading to the loss of tens of thousands of jobs across the UK’s data and marketing industry.
“We are calling on banks and the UK Government to see sense and work collectively to ensure that this does not happen by removing the need for SME owners to provide personal guarantees for these loans.”
Kevin Hollinrake MP, chair of the All-Party Parliamentary Group on Fair Business Banking, said: “I asked the chief secretary to the Treasury [Steve Barclay] in the House of Commons – does the new scheme include personal guarantees and he said it was his understanding that it would not. Well it’s my understanding now that it will.
“It should not include [personal guarantees]. If it does, very few business owners are going to want to take it up. In normal business circumstances, you can’t expect banks to lend money without some sort of commitment. But these are unheralded times and unprecedented measures.”
Meanwhile, the rescue package for freelance workers has also been called into question, especially as it will not be available until June at the earliest.
Advertising Association chief executive Stephen Woodford commented: “The announcement by the Chancellor of support for the self-employed and freelancers is a hugely positive move, which the AA and its members and partners across industry have been asking for with urgency in ongoing conversations with Government.
“Our self-employed and freelance colleagues are a crucial part of the advertising and wider creative industries and we hope that these measures will give them the increased sense of security they desperately require at the present time and hope that they can be implemented as soon as possible.”
However, the AA has vowed to review the finer detail of the minimum income support provided for in the announcement and will continue to work closely with HM Treasury and DCMS officials to help to ensure that the financial assistance is delivered in time for the people it is designed to help.
It has since emerged that sole traders operating limited companies will not qualify for the help nor will those who are recently self-employed and do not have a full year of accounts.
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