The Treasury and UK banks are locked in tense discussions about the final terms of a new fast-tracked business loan scheme due to launch on Monday, as figures showed lenders have approved less than 50% of the applications for government-backed funding as part of the existing programme.
The new “bounce back” loan scheme was announced by the chancellor, Rishi Sunak, at the start of the week with some key details still to be ironed out, and is scheduled to become available on Monday.
Some banks are concerned that the chancellor’s pledge to distribute cash within 24 hours of receiving a funding request could prove unrealistic, and are still waiting to confirm the questions that will be included in the scheme’s one-page application form.
The Treasury is expected to force banks to offer a standardised interest rate or cap on the loans once the initial 12-month interest-free period runs out. That rate could be set as early as Friday once UK banks hand in their own pricing information, though there has been speculation that the number could end up around 2.5%. Neither of the existing government-backed loan schemes have involved capping rates.
Some lenders are also worried that they may breach regulations by taking part in the scheme.
Preparations are expected to continue throughout the weekend, according to industry sources, who said it could come down to the wire. There has been precedent for last-minute revisions: it is understood that term sheets for the original programme for aiding small businesses, the coronavirus interruption loan scheme (CBILS), were not completed until 3am on the day of its launch on 23 March.
It is understood that even after the new scheme is launched, the rules for the bounce back loan scheme will be kept under review by the Treasury and the City regulator, the Financial Conduct Authority.
Figures released by the banking industry trade body on Thursday showed that 25,262 CBILS loans worth £4.1bn have so far been distributed to small and medium-sized businesses. That equates to only 48% of the 52,807 businesses that have applied. By contrast, France said it expected to distribute €40bn (£35bn) worth of loans to local businesses by the end of the month.
The bounce back loan scheme offers 100% government-backed loans to small businesses worth up to 25% of their turnover, up to £50,000. The standardised application, which is expected to be an online form, is expected to speed up the process for businesses affected by the Covid-19 outbreak and resulting lockdown.
Lenders have been accused of dragging their heels on CBILS and being too slow to distribute the loans, which are 80% backed by the government. However, banks have said they have been carrying out the appropriate checks and have been working overtime to get money to customers.
Banks are concerned they could be breaching regulatory duties to carry out affordability checks for their smallest business borrowers, who are protected by the Consumer Credit Act. Under those rules, banks have to make sure borrowers fully understand the terms of the loan, otherwise the loan contract could be cancelled. Senior managers are now legally accountable for any errors made on lending practices.
In normal circumstances, changes to the act would require a change to UK legislation. Banks are now waiting to see whether the FCA will give concrete guidance on how the rules might be relaxed without requiring MPs to vote through emergency changes.
A spokesperson for the banking industry trade association, UK Finance, said: “This scheme is a vital part of the support provided to help business at this time. The industry has worked closely with HMT on the development of the scheme.”
The Treasury and FCA were contacted for comment.
HSBC said it had approved 5,295 or around 20% of the CBILS loans, worth £765.2m, while Barclays has issued just over 17% of the total, worth £835m. Lloyds has approved 4,361, representing around 15% of the loans, worth £500m. RBS still holds the largest proportion of the loans, around 31%, after approving 8,292 worth £1.6bn.
