Business groups have said that commercial lenders, who currently cover 20% of loan losses under the government’s Cbils program, are refusing requests for bailout funds that could help businesses stay solvent thanks to closing the coronavirus.
Adam Marshall, managing director of the British chambers of commerce, said there was an urgent need for the treasury to simplify the system to allow more businesses to access interest-free one-year loans.
Carolyn Fairbairn, executive director of the IWC, said on Friday that ministers must offer 100% government-guaranteed loans to prevent thousands of businesses from falling into the wall.
It would be “an important part of the mix” of loans and grants offered to rescue companies, she said.
Bank of England Governor Andrew Bailey has suggested that a government guarantee for loans under £ 25,000 may be the only way to bypass standard bank credit checks.
“Is there a case [for 100% guarantees] for very small businesses with a fairly high volume of requests? Would that unlock things to change the risk appetite for these companies? ” He asked.
Latest financial sector figures show that banks have received around 28,000 loan applications under the month-old program and have agreed to make 6,000 loans. It is unknown whether the remaining 22,000 candidates have been rejected or are still awaiting the outcome of their application.
Last week fictional business secretary Ed Miliband urged business secretary Alok Sharma to revise the Cbils loan scheme, or risk thousands of businesses going down.
Miliband recommended that Sharma and Sunak review the Swiss model, which is based on a single government form that is used by all lenders, and is backed by a 100% government guarantee.
At the time, business leaders were reluctant to support Miliband’s call, but over the past week, the low level of loan requests and agreements has prompted them to demand further thinking.
They were also joined by former chancellors George Osborne, Norman Lamont and Sajid Javid, who called on Sunak to “remove the banks” and switch to commercial loans fully guaranteed by the government.
Treasury officials are reluctant to take out any small business loans, fearing that the system will be abused. However, they are discussing with business groups how to improve the lending system after criticizing the banks for applying strict lending criteria, preventing businesses from accessing loans.
In particular, banks need to consider whether borrowers can afford to repay the loans, which can be made over a period of six years.
Miliband said it was “almost impossible” for many companies to answer the question when the current crisis involved so much uncertainty.
“The argument for a 100% government subscription is now unanswered. Its support is shared and echoes business groups and the Bank of England.
“The fate of many companies lies in the decisions that the Chancellor will take in the coming days. It must act now, or the companies will start to multiply.
Last week, the Treasury extended the CBILS program to all viable businesses with a turnover of £ 45-250 million, which can apply for government guaranteed loans up to £ 25 million. Companies with sales of more than £ 250 million will be allowed to borrow up to £ 50 million from lenders.