Only one in five UK businesses who have formally applied for government-backed loans have been granted emergency funding during the Covid-19 lockdown, raising concerns that the programme is failing to get money out fast enough to support struggling firms.
Figures released by the banking lobby group UK Finance showed that British banks have nearly doubled the number of business loans for customers impacted by the Covid-19 lockdown in just one week, but critics say the government-backed scheme is still failing get money out fast enough to support struggling firms.
A total of 6,020 loans worth £1.1bn had been issued under the coronavirus business interruption loan scheme (CBILS) as of Tuesday. That is nearly twice the 3,309 issued last week, and marks a 150% rise in the total amount lent to small and medium-sized businesses – worth an additional £700m.
UK Finance said 21% of the 28,460 formal applications had so far been approved for the government-backed loans, which are interest-free for 12 months. However, more than 300,000 firms have reportedly made informal inquiries about seeking help from the scheme, which is part of the government’s wider business support package worth £330bn.
A survey released on Wednesday by the British Chambers of Commerce showed that just 2% of respondents had successfully accessed the CBILS programme this week. While that is double last week’s figure, some businesses said lenders were failing to respond to informal inquiries fast enough, if at all. UK Finance is not releasing data showing which banks are releasing the most loans under the scheme. More than 40 lenders are issuing CBILS loans.
Mike Cherry, the national chairman of the Federation of Small Businesses said: “This improvement marks a starting point, but while one in five formal CBILS applications are approved, the major banks claim their approval rates for standard commercial loans are many times higher than that. These loans are state-backed, so approvals should be higher still. There’s still a lot of work to do.”
The UK Finance chief executive, Stephen Jones, said banks were trying their best to keep up with demand: “Frontline staff in local branches and call centres are working incredibly hard to help firms access finance as quickly as possible amid unprecedented demand. Like all businesses they are working at reduced capacity as many staff are self-isolating or looking after family.”
The Treasury has had to change its criteria to get money out more quickly to businesses which may otherwise fail to survive the lockdown. It has banned personal guarantees that put business owners’ property at risk, and scrapped a controversial requirement for banks to offer loans at commercial interest rates – reportedly as high as 12% – to any eligible businesses before offering a CBILS application.
However, Labour’s shadow business secretary, Ed Miliband, said the CBILS programme should be expanded so the UK government guarantee covers the entire loan and therefore bolsters banks’ appetite to lend. Under the current terms, the government covers 80% of a CBILS loan.
“These figures show that the CBIL scheme is simply not working well enough. We need change now. The chancellor must move to a 100% guarantee of loans for smaller businesses as other countries have done. In this economic emergency, it is the right thing to do,” Miliband said. “In the coming days, businesses are facing critical decisions about their future.”
Cherry said there was also concern about the future of Britain’s loss-making startups, which were not eligible for CBILS but should not be allowed to fail.
“The question of support for early stage, loss making start-ups remains a pressing one,” he said. “The list of businesses that spent their early years in the red only to go on and be great successes is as long as your arm. They must not be abandoned.”
How small firms have been impacted by the crisis
Neil Massey, shave shop owner
Neil Massey, 56, runs Mr Massey’s Emporium, which specialises in handmade facial hair and skincare products in Brighton.
Massey has not received any wholesale orders since the lockdown was enforced and, with the high street shop also shut, he has had to rely solely on online sales for income.
He approached Santander for a CBILS loan on 17 March when the chancellor expanded the scheme but has so far failed to access emergency funding. “We applied for a business interruption loan on the day it was launched. Three weeks later, and after several calls and emails to Santander and our MP, Lloyd Russell-Moyle, we still have no funding,” Massey said.
“The bank has sent two updates to say they are inundated, but a friend who works at a senior level at the bank says they are not willing to lend to businesses which are struggling in a time of such uncertainty, even with government backing.”
He has since made a formal complaint to the bank.
Graham Constantine, marketing agency boss
Graham Constantine, 59, who runs a three-person digital marketing agency on the south coast, has suffered a 50% drop in client contracts since the coronavirus outbreak.
After hearing about the government-backed CBILS programme three weeks ago, he has made at least five calls to Barclays, tried to contact the lender online, and requested two callbacks by the British Business Bank, which is in charge of administering the CBILS programme.
He eventually visited his local branch in Brighton: “I was told by the five people standing around in the foyer that they were not authorised to help.
Constantine has since abandoned the idea of CBILS assistance, as few banks besides RBS are offering loans worth less than £25,000, which is too large for his business.
He is now chasing Barclays for an emergency overdraft. While the bank has called back twice, neither of the agents were authorised to deal with Constantine’s request and told him they would be in touch soon.
“Like all small-business owners I am very resilient and will trade my way through it. But I know that the cavalry are not coming.”
