The chief executive of the banking trade body has said the government could extend the business loan scheme in order to help the smallest businesses which are currently slipping through the net.
Speaking at a Treasury select committee hearing yesterday afternoon (April 15), Stephen Jones, CEO of UK Finance, said the UK could require a “combination” of loan schemes — one which required stringent credit checks and one that did not — so that the “small end of the SME market” would have access to a simpler scheme.
Mr Jones admitted there “remained a gap” within the government’s Coronavirus Business Interruption Loan Scheme which meant a number of businesses would not be covered by the scheme.
He said: “That gap exists and we need to decide collectively what to do about it.”
When asked by MP Rushanara Ali if the government needed to support the smaller end of the SME market, which is struggling to access the scheme, Mr Jones said the government was “listening to circumstances as they emerge” and would “adapt to the situation as it is seen on the street”.
The CBILs, which has paid out £1.1bn in loans to SMEs so far, provides lenders with a guarantee of 80 per cent of losses that may arise on loans of up to £5m but requires banks to credit check the business to ensure they are viable on the government’s behalf.
The terms of the scheme mean businesses must have been financially viable as of December 31, 2019, have the capability to repay the debt after the crisis and have security to back the loan in order to qualify.
Mr Jones said: “In identifying a scheme [on the above terms], the government is expressing a very different risk appetite and parcel of businesses it wishes to support under the scheme [to other European countries].
“In Germany and Switzerland, clearly the risk decision is ‘we want everybody more or less viable going into the crisis to receive this money and receive this money fast’.”
Mr Jones said this was not the decision taken in the UK, but if the government wanted to support more businesses it was possible to change the guarantee level because banks would then not be obliged to do a full credit check.
Ms Ali, MP for Bethnal Green, said: “There does feel like there is a narrative — survival of the fittest — where the impact on different groups of businesses is going to be different.
“The largest businesses are going to get more help faster and find it easier to overcome barriers. Smaller businesses are not surviving because of a failure to act fast enough and respond to them higher up the agenda, which seems to be the case at every crisis.”
Mr Jones said the SME community, and especially the smaller end, was the “vital backbone” of business in the UK and would be critical to the UK’s successful emergence from this crisis.
He added: “We should do everything we can to provide the support which enables economic capacity and personal and social issues associated with businesses failing should be avoided as much as it possibly can be.”
But Mr Jones, who represents the banking industry, shirked the industry's responsibility for struggling firms, saying it was doing all it could under the terms set by the government.
Member of Parliament for Wallasey, Angela Eagle, raised concerns over how banks decided which businesses to support saying many businesses had been told they were not viable when applying for CBILs.
Also speaking to the committee, Stephen Haddrill, director general of the Finance and Leasing Association, said: “Whatever the UK can do to reduce the credit risk associated with the lending the better, so they should be looking at the historic business.
"Therefore, banks are required to take a view of a firm’s viability based on past performance, rather than future performance as it would typically do when assessing a loan application."
Christopher Woolard, interim chief executive of the FCA, told the committee this was an “unusual” and “difficult” situation for banks, but added: “Ultimately the thrust of what the government has put in place is about supporting viable firms through the crisis, it is not about propping up firms which were failing in the first instance. And that obviously is a judgement that needs to be made case by case.”
Earlier this week chancellor of the exchequer Rishi Sunak said if it extended the scheme to a 100 per cent guarantee, it would not be just the government taking the risk but “actually all of us. It's the taxpayer taking 100 per cent of the risk of the loans defaulting.”
A HM Treasury spokesperson said: “We’ve been taking unprecedented action at unprecedented speed to help businesses, jobs and our economy during this crisis – with hundreds of thousands of firms across the country benefiting from our wide package of support.”
imogen.tew@ft.com
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