UK vs US Covid-19 Business Relief Comparison

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Jim Shaw, Founder and Partner at Shaw & Co compares the differences between emergency funding made available in the United Kingdom and United States to support SMEs in response to the Coronavirus crisis. He challenges the assertion from the Chancellor – Rishi Sunak – that the government is prepared to “do whatever it takes” to support UK SMEs and the UK economy and wonders if the UK should look to the US for inspiration to improve the Coronavirus Business Interruption Loan Scheme.

With the Coronavirus making its grim way from the epicentre in China through Europe and now into the US, it is natural that the US ratification of the Coronavirus Aid, Relief and Economic Security (CARES) Act is a week or so behind measures first announced by our Chancellor, Rishi Sunak, on 11 March.

Unfortunately, timing of announcements is largely where the UK advantage stops. In our analysis, the US package is far more effective in supporting SMEs and therefore, getting ahead of the crisis. These “all in” measures will better enable the US to deliver the right economic relief where it is needed fast. Importantly, this will allow the US to preserve far more of its business capacity and drive a far faster and broader economic recovery once the health risk of Covid-19 has passed.

The table below captures the main differences in the approaches taken by the UK and the US. To borrow a boxing analogy, in relation to pre-existing schemes, both countries weighed in at broadly the same weight and with similar form. Both had well established schemes in place to help SMEs to access finance with government backing, and both have chosen to repurpose those schemes to deliver SME emergency funding.

Where the two countries went from there is in stark contrast from one another and, if this was indeed a boxing match, a fair referee would have called off the contest early in the evening.

The US has gone straight to the nub of the problem. The issue SMEs have in its raw form is lost revenue. If this is replaced by government support, the business and the rest of the economy can proceed as normal, jobs preserved, suppliers paid, finance commitments met. The economy is propped up and capacity is retained ready for when that revenue comes back on stream again.

The UK has followed a policy of timid intervention rather than face the problem head on. It has designed a series of interventions that run around treating the symptoms but not the cause. This has resulted in a complex web of support that is wrapped up in compromises and half measures.

Business owners are being forced to cut deep and hard before getting access to much needed support. They are having to “exercise all available options” before any government backed loans are forthcoming including deferment of supplier payments, laying off staff and other credit. This sends ripples throughout the system and will result in material long term damage to the UK economy.

To ensure balance, some commentators in the US are criticising the US programme for being too generous, however in two years’ time, it is highly likely that tax revenues from the resulting US economic bounce back will go a long way to silencing those critics.

  In the blue corner – UK Coronavirus Business Interruption Loan Scheme (CBILS) In the red corner – USA Small Business Administration (SBA)

Starting base – broadly similar

Blueprint/Base Scheme Enterprise Finance Guarantee Scheme – 75% guarantee. Small Business Administration Program – 75% guarantee.
Purpose Loans up to £1.2m for businesses with demonstrable lack of security. Loans up to $5.5m for businesses with demonstrable lack of security.
Personal Guarantees Regular feature due to lack of other security. Regular feature due to lack of other security.
Administration Through lenders approved by the British Business Bank. Through lenders approved by the Small Business Administration (SBA).

Emergency Response – markedly different

1.  State Balance Sheet – US doing “whatever it takes”; UK minimising impact on State    
Scheme Name Coronavirus Business Interruption Loan Scheme (CBILS) Small Business Administration Loans as revised by the CARES Act (SBA CARES).
Government Guarantee 80% up to £5m 100% up to $10m
2.  Employees – US takes existing payrolls route; UK months from designing a new HMRC scheme    
Job protection Via separate Coronavirus Job Retention Scheme (CJRS). Within SBA CARES program.
Protection Method Furlough Grants of 80%. Payroll cost forgiveness within limits per employee.
Distribution through New IT system to be implemented. Established IT system (normal payroll).
Cash flow Retrospective claim for grant, employer pays out first recovers cash later. Employer first receives cash and makes claim for debt forgiveness later.
Productivity Furloughed employees can’t work, or else support removed from the employer. All employees can work whilst the employer is receiving support.
3.  Security – UK CBILS will flow only to strongest SMEs; US wide-spread fast relief    
Business Assets All available security must be explored first. No collateral requirement.
Personal Guarantees Waived by major banks <£250k; likely feature in most loans above £250k. Not required.
4.  Other Credit – UK SMEs bogged down before applying; US removes all obstacles to relief    
Other Credit Availability All other forms of commercial lending must be explored in advance. No need to prove lack of other credit.
5.  Other Stakeholders – UK approach spreads contagion widely; US contains contagion    
Suppliers Must explore payment holidays.

Mortgage lender Paid.
Landlords Paid.
Asset Finance Paid.
Other lenders Paid.
Utilities Mostly paid. Paid.
Taxes/Rates/VAT Deferred. Deferred.

Taking the measures in turn – we have a look at the post match scorecard:

Round 1 – State Balance Sheet (US wins) – The Chancellor’s stated aspiration of doing “whatever it takes” falls short of the mark as explored in our open letter to the Chancellor and subsequent blogposts.  Now the US CARES Act highlights the inadequacy of the UK efforts not so much in terms of the size of the support package (we believe the UK numbers largely make sense in light of relative GDP), but in just how much the government is really risking. The US 100% guarantee and other security requirements gets the job done, whereas the UK government still seeks to keep the backstop as far as is possible on the private sector balance sheet.

By guaranteeing 100% of the SBA CARES relief loans, the lending decision is taken out of the hands of the administering banks, thereby circumventing a lengthy and uncertain credit process.  At the same time, the US leverages the well-established SBA and its links to banks existing distribution network able to get essentially to any US SME in need of help.

Round 2 – Employees Support (US wins) – The need to support employment leads the debate in both countries. Yet the US chose to use a well-trodden distribution route, the SME’s own payrolls. By providing the employer the funds in advance through a loan, followed by retrospective forgiveness, the US again comes up trumps (excuse the pun). Whereas the UK finds itself reversing the all-important cash flow with SMEs unable to claim employment grants until HMRC has established and implemented a brand-new Job Retention Scheme and the associated IT delivery system. We all know this IT challenge should not be underestimated, don’t expect cash until June at the earliest.

Both economies chose the route of limited grants to protect company employees, but the UK scheme only applies to furloughed workers who are not allowed to continue working and adding economic value vs the US, where all employees (to the extent their employer keeps them) will be supported and can continue to be productive as much as is possible. This delivers support to business and keeps the economy moving as much as is possible.

Round 3Security (US wins) – By offering a 100% guarantee (and meaning it) the US programme is not hunting for security and in particular avoids the moral hazard of securing “government support” against the personal assets of business owners. Of course, this opens up a debate about the unscrupulous few who might take advantage of the generosity of the US programme due to a lack of “skin in the game”. However, in a time of national crisis one has to focus on the large majority of honest business owners who simply want to save their livelihoods and often life’s work.

Round 4 – Other credit and other stakeholders (US Wins) – Immediately upon ratification of the CARES Act, a US SME can approach any eligible SBA member bank, apply for a loan sized to the demonstrable costs of the business and distribute the money to employees, suppliers and creditors.

Contrast this with a UK SME owner, that has to:

  1. Negotiate reliefs with all suppliers, creditors and other stakeholders, then;
  2. Consider putting their own and their family’s assets on the line by entering into a PG in many cases;
  3. Furlough or lay off employees to save costs taking the right steps not to fall foul of employment law, then;
  4. Get all their accounts together with a ‘best-guess’ forward looking cash flow and a report on how all available reliefs have been exploited and pain inflicted on the supply chain, and only then
  5. Apply for a loan, which is only likely to be available from their existing bank, whose credit appetite is already curtailed by the risk that the government is insisting they take, in the face of looming wave of business failures and covenant breaches.

At which point we stop the metaphorical boxing match, not with a knockout, but with it very clear we have a heavyweight and welterweight in the ring. And someone is going to get hurt.

As active practitioners in the SME space, we at Shaw & Co continue to help and advise clients on accessing whatever reliefs are available in the UK including CBILS. But seeing the US measures reflect precisely what we have been calling for from the very beginning is frustrating, we continue to call on the UK government to revise the CBILS to make it fit for purpose for the many, not the few.

The tragic thing is that a lot of business owners in difficulty will simply choose to either lay off large portions of their workforce or simply fold their businesses without bothering with the Coronavirus Job Retention Scheme or the Coronavirus Business Interruption Loan Scheme.

And by the time the UK Government decides to abandon state aid rules, a key driver restricting the effectiveness of CBILS as we understand it, and actually get ahead of the crisis, the permanent damage would have been done. On reflection we are sure that the cost of doing the job correctly in the first place, will be much less than the cost of lost GDP, lost tax revenue and the increased benefits bill.

Our overall conclusion, if you haven’t guessed it already – US wins, hands down.


Important Notice – Since the date of publication of this article, numerous changes have been made to the CBILS scheme and other Government support packages. This article should be read in the context of the date of publication stated at the top of the page. For further COVID-19 financial support updates for business, subscribe to our mailing list. 


Jim Shaw – Founder & Partner, Shaw & Co

Jim founded Shaw & Co around his kitchen table in 2011. Since then his business has formed one of the largest specialist advisory teams in the South West. Jim has a deep expertise in mergers and acquisitions and advises clients across multiple sectors on complex M&A transactions. He has completed more than 70 M&A deals with a combined transaction value exceeding £0.5bn. He is a Fellow of the Institute of Chartered Accountants and has received several awards and industry recognition including South West Young Deal Maker of the Year in 2013 and nomination for South West Deal Maker of the Year in 2018. He is also listed as one the regions’ 42 entrepreneurs under 42 to watch.

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