Slow Pace of U.K. Rescue Loans Sparks Ire From Firms, Lawmakers

(Bloomberg) --

Business groups rounded on the U.K. government’s flagship lending program for small- and medium-sized companies after a report showed banks extended just 1.45 billion pounds ($1.8 billion) of rescue finance in the past week.

The figure is double that of the previous week, U.K. Finance, the banking industry trade association, said Thursday in a statement. The result is nevertheless stoking frustration that it’s taking far too long for the Coronavirus Business Interruption Loan Scheme to give businesses the help they need to stave off bankruptcy. The Confederation of British Industry is among lobby groups warning of a slow pace of lending.

Mel Stride, chair of Parliament’s Treasury Committee, said the panel will call bank executives to discuss their progress with the program. He also directed U.K. Finance and the British Business Bank, the state-owned body administering the rescue programs, to produce daily data showing loan approvals and other metrics.

“Given that in the current circumstances time is of the essence it is imperative that there is full and rapid clarity on how the schemes are progressing,” Stride wrote in a letter Wednesday to lenders participating in CBILS. So far the program has lent a total of 2.8 billion pounds.

Since its launch on March 23, CBILS has come under fire for being too reliant on traditional underwriting practices as companies watch revenues dry up during the country’s lockdown. Representatives of the industry have said they’re working as fast as they can in extraordinary circumstances and must do credit appraisals even with the government guaranteeing 80% of the loans issued through the program.

Rescue Responsibility

From the day the CBILS was launched, small-business experts have warned that banks will insist on using time-consuming underwriting practices to process loans because they carry 20% of the risk in a pandemic. Having been rescued by taxpayers during the 2008 crash, many officials say the industry has a responsibility to step up in this crisis.

“Banks can this time around be part of the solution rather than part of the problem,” Alex Brazier, executive director for financial stability strategy and risk at the Bank of England, said on a webinar with the CBI on Thursday. “It’s very important therefore that the banks – and I think they are doing this, and they do realize this – kind of lean into this crisis, rather than step back from it. They’ve got the capital, they’ve got the funding, they’ve got the state guarantees.”

Still, other influential voices such as Andy Haldane, the Bank of England’s chief economist, have floated the idea of the state guaranteeing 100% of the loans to speed up the process. Chancellor of the Exchequer Rishi Sunak has resisted overhauling the program.

On Thursday, Mike Cherry, the national chairman of the Federation of Small Businesses trade association, renewed his call for big changes to CBILS.

“The government should up its guarantee on emergency loans with values under 30,000 pounds from 80% to 100%,” Cherry said in a statement. “That, combined with a streamlined application process, should help to get more cash to the small firms that really need it.”

The Institute of Directors highlighted the “swathes” of businesses that have been unable to secure finance, while the CBI expressed concern about the impact of the program’s slow progress on the labor market.

“While the pace is picking up, many firms are still missing out,” Rain Newton-Smith, the business lobby’s chief economist, said in a statement. “More loans need to get out the door faster for the businesses facing distress. Saving jobs now will be far more cost-effective in the end than trying to place lost jobs.”

But with just 16,600 loans provided, officials are becoming increasingly anxious that the program is not delivering results as quickly as similar efforts in other countries. Small and medium-sized businesses account for 60% of the private-sector workforce and contribute 50% of the U.K.’s GDP. Their survival will be crucial in determining the severity and duration of a recession, according to the BOE.

Andrew Bailey, the central bank’s governor, urged banks last week to intensify their efforts in making sure government-supported loans reached businesses. Failure to get money out to them fast enough could lead to economic “scarring” that stalls a recovery, he said.

©2020 Bloomberg L.P.

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