The British coronavirus business interruption loan system (CBILS), which was initially controversial over the demand for personal guarantees, took a month to distribute 18,595 loans worth £ 3.1 billion.
But the pace of approvals jumped following the introduction of two additional programs, including the rebound loan program, which delivered £ 2 billion to 69,000 smaller British businesses in the first 24 hours of its launch on May 4. . Seven weeks later, the United Kingdom is finally catching up, having given nearly £ 15 billion to more than 304,000 companies.
But why did the UK have trouble keeping up with its European peers in the first place? Experts believe the answer may be linked to borrowing trends, the nature of the UK financial system and the UK’s relationship to public spending.
The diagrams at a glance
CBILS depends on banks that lend their own money. However, it is guaranteed that the government will cover 80% of the losses in the event of a customer default and that the bank will not be able to recover the full amount.
The Treasury has modified the program twice since its launch on March 23, following a backlash on the conditions and the slowness with which the loans were processed. Since then, two new plans have been launched: one for large companies – known as CLBILS – and the accelerated bounce loan plan, which comes with a 100% guarantee and a fixed interest rate. 2.5% attractive.
For comparison, France has launched a 300 billion euro (363 billion pound) business loan program with 90% government guarantee, regardless of the size of the company. The state has since announced 100% guarantee plans for companies that were struggling to get financing, and has an ombudsman to help companies that have been rejected.
In Germany, the state initially committed to guarantee up to 90% of private loans, but has since agreed to increase this amount to 100%.
Banks in Switzerland offer fully state-guaranteed loans with a maximum value of 500,000 Swiss francs (£ 425,205) and an 85% guarantee for loans up to 20 million Swiss francs.
A fragmented British banking system
After a boom in bank buyouts in the UK before the 2008 financial crisis, regulators tried to stimulate competition and even encouraged companies to transfer their accounts to small lenders.
Neil Shearing, chief economist at Capital Economics, says that this fragmented system may be part of the reason for the problems with starting the British system. For example, the British CBILS program was launched with 40 banks on board.
“In countries where the system is fairly concentrated – with one, two or three big banks – in a way, it’s easier to start these programs. It only takes one Zoom call where you can eliminate the problems and it makes the implementation phase a lot easier, “he said.
He highlighted Switzerland, where Credit Suisse played a “huge role” in the design and implementation of the program. “This is not the case if a system is much more fragmented … there are competitive advantages, but not when something has to be done quickly.”
While the new bounce program has been set up with only seven UK lenders to start with, most only offer loans to their own customers. This has raised concerns that small businesses that have been encouraged to open accounts with challenger banks in recent years may end up being kicked out of the system or waiting weeks before their own lenders are certified.
UK more used to monetary stimulus than fiscal stimulus
The UK’s £ 330 billion coronavirus business support program is the largest in the history of the country, but European peers are much more experienced in delivering liquidity supported by l ‘State and may have been able to move money much faster.
Countries like France and Germany “benefit from the experience,” said Florian Hense, economist at Berenberg. “They have the facilities in place and companies have the attitude and the propensity to ask government for help at times like these.”
Rather, the UK has relied heavily on monetary policy for economic recovery, which tends to be faster and does not require tax hikes or increased government borrowing.
The state-owned British Business Bank is not used to managing programs the size of CBILS and bouncing loans. It has had to increase staff and continues to create new digital programs to meet demand.
Electronic filter manufacturer in Durham, UK
Anj Hampton, 45, is a director at Rasmi Electronics in Durham. The company manufactures electronic filters that ensure that the radio frequencies of one machine do not disturb another.
The family business exports around 85% of its stock to Europe, but also sells to companies that supply NHS at home. After factories in China closed this year, Anj struggled to get parts and fulfill orders, and eventually had to send staff home. After three months, she was facing a cash crisis and was looking for £ 200,000 to close the gap.
She contacted NatWest five weeks ago, but was wrongly told that exporters were not eligible for CBILS. Anj said that she had gathered evidence from the British Business Bank showing that she still had the right to access the program but had not yet obtained a loan. BBB’s website has since been modified to clarify that exporters are eligible, but it is still awaiting funding.
Real estate engineering company in Paris, France
Eric Malenfer, 55, is the CEO of Gexpertise Conseil, which helps to design, study and model buildings in France and Tunisia.
He had to reduce his 220 employees to part-time work after France was sentenced last month and was looking for 2.5 million euros in emergency loans to stay afloat.
He approached Crédit du Nord and HSBC in France for a total amount of € 2.5 million. The application process took about two weeks, which he said was “particularly short,” and he received the money a week later.
“The state reacted very quickly and the banking agreements were implemented in a timeframe that we never imagined possible,” said Malenfer.
Cinema and events area in Frankfurt, Germany
Andreas Lucas, 56, is a managing partner of Erben d’Orfeo, a restaurant, bar, cinema and event space in Frankfurt, Germany.
The site had to close on March 18 as the pandemic started to spread and it had to put its staff on part-time leave.
He obtained a grant of € 30,000 and a separate micro loan of € 35,000 through the State Development Bank of the Wirtschaftsbank Hessen to cover rent, benefits and maintenance during the epidemic. He said it took less than 10 days between the start of the request and the receipt of the money.
Lucas said it was “one of the least bureaucratic experiences” he has had in the past 30 years.