Business groups and MPs have warned that plans to extend the government’s bounceback loan scheme to help firms survive the second coronavirus lockdown will be undermined unless lenders open accounts for struggling first-time borrowers.
Senior bankers have also flagged the risk of an “operational nightmare” when the extension begins on Monday as they work out the details of how existing bounceback borrowers can ‘top up’ loans to the full £50,000 before the programme reopens.
Earlier this week, the government extended its loan guarantee schemes from November until the end of January to help UK companies with their cash flow during the second national lockdown. Since the schemes opened in May, more than £60bn has been lent by banks to about 1.4m firms, the majority through the bounceback loan scheme (BBLS).
The big five high street lenders — Barclays, HSBC, Lloyds, NatWest and Santander — have accounted for about 90 per cent of the bounceback scheme so far but are not taking on new customers. They complain of being inundated by demand from struggling small businesses for the loans of up to £50,000, which are interest free for a year and are fully guaranteed by the government.
Almost all of the so-called ‘non-bank lenders’ that are accredited under the BBLS are also restricting access to new applications.
Kevin Hollinrake, conservative MP and co-chair of the all-party parliamentary committee on fair business, said it was unacceptable that “so many firms — we think about 250,000 — are completely locked out of the scheme”.
He said this was because non-bank lenders do not have access to funds to offer loans, while the bigger banks, which do have the funds, were unwilling to open new business accounts. Mr Hollinrake is in talks with the chancellor, Rishi Sunak, and City minister John Glen to try to find a solution.
Officials have privately made clear to lenders that they should open to new customers as soon as it is operationally possible for them to do so, according to one person familiar with the Treasury’s position.
Bankers on Wednesday said that they were in talks with Treasury officials and the British Business Bank, which administers the scheme, on what the extension will mean for customers and new applicants.
HM Treasury said: “We are working closely with banks to ensure that borrowers who need them can access loans under the scheme.”
The extension of the loan schemes until the end of January was a component of the latest round of support to help businesses survive forced-closure during the UK’s second national lockdown.
Craig Beaumont, chief of external affairs at the Federation of Small Businesses, said: “We are looking for banks to step up and allow new customers to apply who didn’t know they needed the money in the first wave. Clear, positive policy direction from the chancellor needs to be matched in delivery from the banks.”
The British Chambers of Commerce also wrote to UK banks last week calling for support for small businesses.
But banks are wary that businesses that have not taken loans so far could be the most risky, with the National Audit Office already warning that taxpayers could lose as much as £26bn in fraud and default.
Banks have pledged to honour a separate move by the government to allow existing bounceback loan borrowers to ‘top up’ their loans to the full £50,000. One banker said significant demand was expected among those looking to “double dip” because they had not taken the full amount during the first lockdown.
The extension until the end of January has also raised concerns over the distortion of the small business lending market, which is now almost fully covered by government-backed loan schemes.
Charlotte Crosswell, head of Innovate Finance, which represents the alternative finance sector, said that non-bank lenders who are not accredited lenders, which lack access to cheap Bank of England funding, were at risk of being shut out of the market for longer.
“We have to find ways to support businesses that have been closed down in the lockdown and focus on longer-term SME financing to help economic recovery,” she said.