The government will launch its scheme to help small businesses access crucial loans this week after widespread criticism that it had not acted fast enough to help companies hit hard by the coronavirus and are struggling to survive.
Small companies, which are rapidly running out of cash as society shuts in response to the pandemic, have reported a frosty reception from many lenders ahead of the scheme’s launch.
These include businesses run by entrepreneurs who are desperate for immediate help from banks, not least because the announcement on Friday of generous wage subsidies do not apply to the self-employed.
Earlier last week chancellor Rishi Sunak laid out a rescue package of “£330bn of guarantees” but most of the scheme is designed to offer commercial paper to large companies.
The government on Monday will provide further details of the scheme aimed at encouraging banks to provide loan facilities of up to £5m for smaller businesses experiencing increased costs or disruptions to cash flow because of the crisis. The Treasury had envisaged the scheme would encourage lenders to provide loans to struggling businesses that would otherwise be refused.
But Craig Beaumont, director of external affairs and advocacy at the Federation of Small Businesses, said many members had gone to their banks last week only to be told the lenders were unaware of the initiative.
“Small business owners and the self-employed are calling FSB in their droves with poor frontline banking experiences during this crisis. This has to change, and time is running out,” said Mr Beaumont. “Next week is going to be crunchpoint for many, and all of us now have to step up to prevent business closures — and that includes the UK’s banks.”
Small business owners worry they will not be able to access the loans because the banks, many of which only received details of the scheme at he end of last week, were still using pre-crisis lending criteria to assess whether a company was credit worthy.
The scheme was designed to give a lender a guarantee on 80 per cent of the outstanding facility while the government would also cover fees and interest for a year.
But the borrower remains liable for the loan, which has caused criticism from business owners who are reluctant to add to their long-term debt burden. The lender also has to consider the loan viable were it not for the pandemic.
“Banks have lengthy due diligence processes and credit committees to please and ultimately need to see that the loan will be repaid, with interest, at a time where the real need is to pay wages next week and stop immediate collapse of many, many businesses,” said Rosa Howard, a director of a number of businesses including Big Ideas Group and Napier Technologies.
Concerns also exist that banks’ small business teams have the capacity to conduct all the necessary due diligence as many small businesses face at cash crunch within days after their revenues disappeared overnight.
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One entrepreneur warned that unless the government “massively” changes the rules by Monday the scheme will not be ready in time to prevent many businesses from going under.
Nick Carter, manager of a nightclub in Preston, said he had visited his bank on Wednesday to seek a loan and was told “we don’t support the scheme”.
A number of the banks said the confusion had arisen because Mr Sunak announced the package before the fine details were in place. As a result, lenders have spent the last few days scrambling to work out how the scheme worked in an attempt to get it up and running next week.
The FSB has collated a number of anonymised examples of members experiences with their local bank branches after last Tuesday’s announcement.
One company owner seeking a loan said he booked an online appointment with his bank, in which the adviser said he knew nothing about any new measures. At a second direct meeting at the bank, he was told: “I have no idea about any corona relief.”
Another sought to get his mortgage payments deferred only to be told this was not possible.
A third business owner said his bank told him that the interest rate on his overdraft of £10,000 would rise from 6 per cent to 25 per cent.
