More than £ 1.1 billion has been lent to around 6,000 small businesses under the UK emergency lending program, raising concerns over the scale and speed of the government’s rescue package against coronavirus.
Banking industry group UK Finance said on Wednesday that public lending to SMEs had increased by around £ 700 million last week, and that loan approvals had doubled during this period.
Lenders received 28,460 applications for this program, which was launched in late March. UK Finance has stated that these are still being processed and that many are expected to be approved in the coming days.
However, the figure is well below the level of inquiries, which were reported to have reached 300,000 at the end of last week, with many companies being told that they are not eligible for loans before submitting a formal request.
The general slowness of the Coronavirus business interruption loan program (CBILS) raises more questions about how the government designed the program. There are up to 5 million SMEs in the UK, with around 22 million employees.
New research on Wednesday found that a third of small businesses were operating on so little money that they could not survive more than two weeks.
The joint report by the Association of Chartered Certified Accountants, the UK trade body, and the Corporate Finance Network, a regional network of accountants, says that 10% of clients have gone out of business due to the impact of the coronavirus. The figures were based on a panel of accountants representing almost 9,000 clients across the UK.
Under CBILS, Chancellor Rishi Sunak has guaranteed 80% of loans up to £ 5 million to small businesses with turnover below £ 45 million to encourage banks to continue lending to companies struggling to stay afloat during the pandemic.
“While one in five formal CBILS applications are approved, major banks say their approval rates for standard commercial loans are much higher than that. These loans are state supported, so approvals are expected to be even higher. Many members tell us that it is difficult to get to the formal application stage, “said Mike Cherry, president of the Federation of Small Business.
The program has experienced problems since its launch. Companies had to meet strict criteria based on pre-crisis commercial lending conditions to access bank loans. Many companies have also complained that their requests took weeks to process at a time when they were burning with money.
Claire Bennison, ACCA director, said SMEs are experiencing “administrative delays and complexity that undermine the proposed bailout”.
The government relaunched the program last week, removing the need for administrators to give personal guarantees to access loans, while seeking to streamline the process. The average loan value is around £ 185,000.
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Slow progress has been made in other areas of the government’s emergency rescue program. Big business has so far borrowed only £ 5.5 billion from the Bank of England’s commercial paper program since its launch, according to official figures last week.
The central bank has been tasked with purchasing commercial debt from large investment groups as part of the Covid Corporate Financing Facility, with the government offering guarantees of up to £ 330 billion.
Next week, ministers plan to launch an extension of CBILS to cover large companies with turnover of more than £ 45 million who complained that they were unable to access SME or commercial paper systems.
Businesses and pressure groups have called on the government to ensure that the program for businesses in the so-called tight environment is quickly deployed.