State-backed SME lending picks up too late for many

More than £1.1bn has been lent to about 6,000 small businesses under the UK’s emergency loans scheme, renewing concerns over the scale and speed of rollout of the government’s coronavirus bailout package.

On Wednesday, UK Finance, the trade group for the banking sector, said state-backed lending to SMEs had risen by about £700m in the past week, and loan approvals had doubled in that time.

Lenders have received 28,460 applications under the scheme, which was launched in late March. UK Finance said these were still being processed and many were expected to be approved over the coming days.

However, the figure is much lower than the level of enquiries, which are reported as having hit 300,000 by the end of last week, with many businesses being told they are ineligible for the loans before submitting an official application.

The overall slow take-up under the Coronavirus Business Interruption Loan Scheme (CBILS) raises more questions over how the government designed the scheme. There are as many as 5m SMEs in the UK, with an estimated 22m employees.

New research on Wednesday showed that a third of small businesses were running so low on cash they would not be able to survive longer than two more weeks. 

The joint report by the Association of Chartered Certified Accountants, the UK trade body, and the Corporate Finance Network, a regional network of accountants, said that 10 per cent of clients had gone out of businesses due to the impact of coronavirus. The figures were based on a panel of accountants representing almost 9,000 clients across the UK.

Under CBILS, chancellor Rishi Sunak guaranteed 80 per cent of loans of up to £5m to small businesses with turnover of less than £45m to encourage banks to keep lending to companies struggling to stay afloat during the pandemic.

“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. Many members tell us it’s difficult to get to the formal application stage,” said Mike Cherry, chairman of the Federation of Small Businesses.

The programme has been beset with problems since launch. Companies have had to meet strict criteria based on pre-crisis commercial lending terms to access the bank loans. Many businesses have also complained that their applications were taking weeks to process at a time when they were burning through cash.

Claire Bennison, head of ACCA, said SMEs were experiencing “delays and administrative complexity that undermines the rescue package that’s being offered”.

The government relaunched the scheme last week, removing the need for directors to give personal guarantees to access the loans, while seeking to streamline the process. The average value of a loan is about £185,000.

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There has been slow progress in other parts of the government’s emergency business bailout programme. Large companies have so far borrowed just £5.5bn under the Bank of England’s commercial paper scheme since it launched, according to official figures from last week. 

The central bank has been instructed to buy commercial debt from large investment-grade groups under the Covid Corporate Financing Facility with the government offering to guarantees up to £330bn.

Next week ministers plans to launch an extension of CBILS to cover larger companies with a turnover of more than £45m, which had complained they could not access the SME or commercial paper schemes.

Businesses and lobby groups have called on the government to ensure the scheme aimed at companies in the so-called squeezed middle is rolled out rapidly.

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