Head of U.K. Business Rescue Program Says Loans to Flow in Days

(Bloomberg) -- The head of the British government body charged with distributing state-backed loans to desperate small companies said help to cope with the coronavirus is on the way.

“The money will start to flow this week,” Keith Morgan, chief executive officer of the British Business Bank, said in an interview with Bloomberg News on Monday. “We have had close interactions with major lenders and they are entirely committed to making this happen.”

The U.K. government established the BBB six years ago to provide state support to smaller companies in the wake of the global financial crash, and is now using it to channel aid to businesses reeling from the impact of official measures to contain the virus. Starting Monday, its Coronavirus Business Interruption Loan Scheme will offer guarantees to banks in a bid to get them to extend favorable loans and credit to struggling small businesses.

Under CBILS, companies with less than 45 million pounds ($52 million) in annual sales can borrow as much as 5 million pounds for as long as six years. The BBB will guarantee 80% of the principle to the lender, and the state will cover interest payments and bank fees for 12 months through a “business interruption payment.”

So far 40 accredited banks are ready to participate in the program, from big players such as HSBC Holdings Plc and Barclays Plc to so-called challengers like Metro Bank Plc. Online fintech firms such as Funding Circle Plc and MarketFinance Ltd., which have distributed BBB-supported loans to small companies in the past, have not yet been approved to participate.

“The scheme provides the lender with a guarantee and the sharing of risk, so it should enable a ‘no’ credit decision to become a ‘yes’ credit decision,” Morgan said.

Aid Package

The program is part of a 330 billion-pound emergency funding package unveiled last week by Chancellor of the Exchequer Rishi Sunak. Other measures include the provision of liquidity to financial institutions in collaboration with the Bank of England, waivers of business levies for the retail, hospitality and leisure industries for a year, and partial government coverage of workers’ salaries.

The BBB has asked lenders to assess companies’ financials and score their applications as if the pandemic wasn’t happening. Would-be borrowers who otherwise would have been turned down because of concerns about the economic impact of the virus could be eligible to participate in CBILS.

Business owners may welcome the relief but question how long it will take for the aid to arrive, especially if big banks are acting as middlemen. They may also balk at piling on more debt even with 12 months of free interest, said Matt Dickinson, a spokesman for the Federation of Small Businesses, a trade association.

“We hope this will be in place quickly but there is a question of demand,” Dickinson said. “Why would small businesses want to take on debt when we don’t know when the crisis will end?”

Morgan, whose team has spoken to the heads of commercial-banking operations at top lenders over the past 12 days, is optimistic CBILS will get off the ground this week because it isn’t starting from scratch. The virus aid builds on an 11-year-old government loan guarantee program that has extended 3.2 billion pounds to 30,500 enterprises. That’s why the BBB already had 40 accredited institutions ready to take part.

CBILS thrusts the once-sleepy BBB onto the front lines of the government’s campaign to address the economic fallout from the shutdown. Rather than provide funds directly to enterprises, it joins forces with partners such as banks, venture capital funds, leasing companies and web-based fintech platforms to distribute debt and equity finance.

By the end of last year, the bank had provided 6.6 billion pounds to 89,000 companies ranging from startups to more mature growth-stage firms. In 2019, it generated an adjusted return on capital of 3.6%.

©2020 Bloomberg L.P.

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