UK Businesses Say Banks Still Processing Emergency Loans Too Slowly

By Adam Clark

The U.K.'s emergency-loan program to help smaller businesses through the coronavirus pandemic is struggling to reach borrowers, according to figures released Wednesday.

The British Chambers of Commerce said that in an independent survey of 1,000 firms it contacted, just 1% had successfully accessed the government's Coronavirus Business Interruption Loan Scheme. Some 8% of firms had been unsuccessful, while the other 91% had not attempted to access the scheme or sought grants from elsewhere.

The poll was conducted from April 1-3.

The CBILS package has faced numerous problems. In late March, the British government offered 330 billion pounds ($390 billion) in loan guarantees, offering to take on 80% of the risk for lenders. However, banks were obliged to first offer normal commercial terms and businesses complained that directors were being asked for personal guarantees.

U.K. treasury chief Rishi Sunak loosened the terms of the plan, but since then banks have reportedly been overwhelmed by the number of loan requests. Alison Rose, the chief executive of the U.K.'s biggest business lender Royal Bank of Scotland Group PLC, told the BBC that the lender was receiving 25,000 calls a day, compared with 3,000 normally.

The U.K. Treasury said Wednesday that GBP453 million worth of loans had been approved for 2,500 businesses.

"We've made changes to the loan scheme and we're working with the banks to get this support out. We're making good progress, with the latest statistics showing a fourfold increase in a week," a Treasury spokesperson said.

The figures compare with the U.S.'s equivalent Paycheck Protection Program, which as of Wednesday had processed more than $70 billion in loans according to President Donald Trump, having launched the prior week. In Europe, local press reported in Spain that a similar government-backed package was close to exhausting its first tranche of 20 billion euros ($21.7 billion) this week.

"It's vital that governments across the U.K. continue to work closely with business over the coming days. Every minute counts, and governments, local authorities and banks must do everything in their power to ensure support gets to firms on the frontline more quickly," said Adam Marshall, director general of the BCC.

Specialist U.K. business lender OakNorth Bank told Dow Jones that the requirement by U.K. banks to assess credit risks could slow the process compared with the U.S., where the government has offered a 100% guarantee on loans under its emergency program. OakNorth has licensed its own credit-platform to U.S. lender Customers Bancorp Inc., to help it monitor borrowers exposed to the pandemic.

"I do think the U.S. scheme is well-thought through and relevant. If you look at other countries which have a lending scheme, to supplement that with an equity scheme is absolutely needed," said Rishi Khosla, cofounder of OakNorth. He estimated that between 10% and 20% of hospitality companies could struggle to survive the pandemic in the current circumstance, even after drastically reducing their costs.

Meanwhile OakNorth, alongside a number of British financial-technology companies, is still waiting for accreditation to be able to lend through the U.K.'s CBILS plan, which currently operates via a panel of more than 40 approved lenders.

Write to Adam Clark at [e-mail]

(END) Dow Jones Newswires

April 08, 2020 12:47 ET (16:47 GMT)

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