Pressure continues to mount on the Government to offer 100% government-backed loans as part of the coronavirus business interruption loans scheme to prevent thousands of SME firms from going bust.
Business groups said commercial lenders, which must currently cover 20% of loan losses under the government scheme, were turning down requests to borrow rescue funds that could allow firms to remain solvent through the coronavirus lockdown.
It is a matter of urgency that the Treasury simplify the system to allow more businesses to access the one-year, interest-free loans but officials are understood to be reluctant to underwrite all loans to small businesses, fearing the system could be abused. They are, however, discussing with business groups how to improve the loans system following criticism that banks have applied too strict lending criteria, preventing firms from accessing the desperately needed cash.
Figures released by UK Finance over the weekend show that just 6016 loans worth £1.1Bn in total have been approved by banks out of more than 28,000 applications already processed.
Bank of England governor Andrew Bailey has suggested that a government guarantee for loans under £25,000 might be the only way to circumvent standard bank credit checks which continue to frustrate the application process.
He has been joined by former chancellors George Osborne, Norman Lamont and Sajid Javid, who have called on the current chancellor to “cut out the banks” and move to 100% government-backed business loans similar to Switzerland.
Providing a 100% guarantee for smaller loan amounts would greatly help the SME businesses who especially have encountered huge obstacles when trying to obtain vital Government-backed loans under CBILS.
This Government has often referred to the UK’s near six million small firms as the backbone of the economy. No doubt, they are sincere. But, however well-meaning, efforts so far to help these businesses in the pandemic have fallen woefully short.
On a positive note Funding Circle has become the first peer-to-peer lender to be accredited to join the government’s business loans scheme.
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