Coronavirus emergency business loans may be changed yet again

Chancellor Rishi Sunak says he is open to studying what other countries such as Switzerland are doing to help small businesses get through coronavirus crisis

UPDATED: Chancellor Rishi Sunak may change coronavirus emergency business loans yet again in the face of mounting evidence they aren’t working.

Last week, SmallBusiness.co.uk revealed that the majority of small businesses are having their loan applications turned down, even since the chancellor loosened the scheme on April 3.

The British Chambers of Commerce announced that only 2 per cent of businesses surveyed had had their loan applications approved.

>See also: Fewer than 10% of businesses can access government coronavirus funding

Rishi Sunak has told the Financial Times that he would look at other countries to see if the government “could learn and improve” on the small business bailout scheme, which provides interest-free loans of up to £5m for up to one year before bank interest rate kicks in.

Switzerland, on the other hand, offers up to £400,000 as an interest-free loan repayable over five years. The Swiss government covers the entire amount. And cash can be accessed within 24 hours, not weeks, as in the case in Britain. The Swiss emergency business loans scheme began on March 24 and by Tuesday night had passed on funds to 98,500 small firms, 16 times as many as the UK scheme.

The German scheme, which by April 10 had extended €7 billion, started, like the British scheme, with an 80 per cent guarantee for loans to the smallest businesses, but last week this was moved to 100 per cent to simplify and speed up the process.

Hong Kong and many other countries are also providing 100 per cent guarantees for loans to micro-businesses to support employment.

100-per-cent guarantees

Meanwhile, three former Conservative chancellors have all called for the government to offer 100-per-cent guarantees for emergency business loans instead of the current 80 per cent.

Sajid Javid, chancellor Rishi Sunak’s predecessor at the Treasury, backed calls for a 100 per cent guarantee.

Mr Javid said: “Nothing should be left off the table and if i was in the Treasury I would certainly be looking at 100 per cent guarantees to see if it was possible.”

Norman Lamont, chancellor under John Major, said reducing the exposure of lenders “could be part of the solution” and that the risk of fraud could be “a price that has to be paid”.

He said: “The banks are being asked to carry quite a bit of risk and therefore they do a full credit analysis and that means sometimes they don’t want to take the risk.”

“I don’t want to advocate doing things that are unaffordable but I do think there is a problem getting the money to people quickly enough.”

And George Osborne, chancellor under David Cameron and editor of the Evening Standard in London, told the BBC on Tuesday that the government should follow suit for the smallest businesses.

Ed Miliband, Labour’s shadow business secretary, has already called for 100 per cent guarantees for smaller companies.

On Friday, Bank of England governor Andrew Bailey suggest there was a case for a blanket 100-per-cent guarantee for loans up to £25,000 – thereby limiting the cost to the exchequer — but said the “judgment was entirely one for the Treasury”.

Mr Sunak’s new adviser — Richard Sharp, an ex-Goldman Sachs partner and former Bank of England policymaker — is said to be warming to the idea of extending state guarantees to 100 per cent.

Mr Sunak said there was an argument in looking at how other countries are helping microbusinesses, but the government could find itself exposed if credit checks are waived.

Small businesses complain that either banks are slow to respond, even if you can get hold of them at all, and that they are only making the Coronavirus Business Interruption Loan Scheme open to existing customers.

Banks in turn are saying that the British Business Bank, which is running the CBILS, is creating a bottleneck in having to rubberstamp coronavirus emergency business loans.

On Saturday, the BBB added the first two fintech banks, OakNorth Bank and Starling Bank, in an effort to break the logjam.

Latest figures

According to UK Finance figures, 6,016 of the 28,461 coronavirus emergency business loan applications so far have been successful – a 7 per cent conversion rate.

The average values of a CBILS loan is £185,000.

Mike Cherry, national chairman of the Federation of Small Businesses, said: “This improvement marks a starting point, but while one in five formal CBILS applications are approved, the major banks claim their approval rates for standard commercial loans are many times higher than that. These loans are state-backed, so approvals should be higher still. There’s still a lot of work to do.”