Only one in five UK businesses that have applied for government-backed coronavirus emergency loans have been granted funding, the latest figures show.
A total of 6,020 loans worth £1.1bn have been issued under the coronavirus business interruption loan scheme (Cbils) so far, with half of the loans approved coming from the Royal Bank of Scotland, according to figures from the banking lobby group UK Finance.
The numbers are a far cry from the number of business loans approved in the US. As of Wednesday there had been over 1.5 million small-business loan applications approved, totalling over $324 billion, with more than 4,900 lending institutions participating.
However, there is scant evidence that much of that money is actually making it into the hands of business owners. Advocacy organisation, Small Business Majority, has raised concerns businesses that have heard their loans have been approved haven’t actually seen the money yet.
Meanwhile the UK Treasury is coming under increasing pressure to adopt US and European lending models in a bid to speed up funding.
Chancellor Rishi Sunak (pictured at a Downing Street press conference on April 14) said he would do ‘whatever it takes’ to protect jobs as he promised £330billion in state-backed loans
In America through the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses.
In Switzerland, which is offering loans 100 percent guaranteed by the state, over 98,000 smaller businesses received emergency funding by Tuesday evening. There is a one page application form to fill in.
Germany is also offering 100 percent guarantees for loans to businesses classed as small to medium-sized. Firms with between 10 and 50 staff can borrow equivalent to three months’ sales, up to €500,000.
Under the current terms, the UK government covers 80% of a Cbils loan. The Shadow Business Secretary, Ed Miliband, is among a number of critics calling on the government to cover the entire loan.
British banks have nearly doubled the number of business loans for customers, which are interest-free for 12 months, compared to last week. As of Tuesday, nearly twice the number, of 3,309 that had been issued last week, have been approved.
UK Finance said 21% of 28,460 formal applications had so far been approved for the government-backed loans.
RBS is leading the way in the UK when it comes to lending, having processed half the approved loans with 3,000 advances totalling £500m.
However, critics say the government-backed scheme is still failing get money out fast enough to support struggling companies.
In America through the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. US Secretary of the Treasury Steve Mnuchin listen to US President Donald Trump speak during the daily briefing on the novel coronavirus, which causes COVID-19, in the Brady Briefing Room at the White House on April 13
A survey released by the British Chamber of Commerce shows that just 2 percent of those who applied were successful in gaining access to the Cbils programme this week, although that figure has doubled since last week.
Mike Cherry, the national chair of the Federation of Small Businesses, told The Guardian there was still a lot of work to do: ‘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.’
The chief executive of UK Finance, Stephen Jones, said banks were responding as fast as they could to unprecedented demand: ‘Frontline staff in local branches and call centres are working incredibly hard to help firms access finance as quickly as possible … Like all businesses, they are working at reduced capacity as many staff are self-isolating or looking after family.’
In the US more than 1.5 million loans have been approved.
There’s calls for the UK government to adopt the US, German and Swiss practice of offering 100 percent guarantees for loans to businesses (German Chancellor Angela Merkel pictured)
The biggest single fund in the US is the $349 billion paycheck protection program which allows businesses with fewer than 500 employees to apply for assistance.
They can get a maximum of $10 million or two and a half times their average monthly payroll costs in 2019, whichever is higher.
The cash is a grant if it is used to pay salaries for the next eight weeks or becomes a low-interest loan if it is used to pay rent, mortgage or utilities.
Small businesses do not apply to the government but to banks, which administer the funds.
While some money is certainly reaching businesses there is a lack of transparency in the US on how much and to whom.
America’s biggest bank, JP Morgan Chase, said Tuesday that it had approved $36 billion in paycheck protection but had actually disbursed $9 billion.
Other banks have not disclosed the amounts disbursed and the federal government has not either.
‘In general, the system is not working well,’ said John Arensmeyer, chief executive officer of advocacy organisation Small Business Majority, in an interview with MarketWatch. ‘Even businesses that have heard their loans have been approved haven’t seen any money yet.’
Furthermore, the federal government lending program designed to speed money into the hands of businesses hit by the coronavirus downturn is nearing its $349 billion statutory limit less than two weeks after it began.
The federal government is on the verge of the lending limit on its Paycheck Protection Program that is funnelling relief money to the nation’s struggling small businesses amid a stunning jump in unemployment.
Former Bank of England governor Lord Mervyn King told Sky News earlier this week that ‘something has gone wrong’ with the Government’s emergency bailout loans system
The Trump administration has asked Congress, which set the original ceiling, for another $250 billion for the program. However, that request has stalled in the Senate.
Earlier this week, the Former Bank of England governor Lord Mervyn King warned something had ‘gone wrong’ with the UK government’s emergency bailout loans system.
The 72-year-old admitted he is ‘worried’ about the workings of the scheme which , has seen more than 300,000 firms making informal inquiries about seeking help from the scheme, which is part of the government’s wider business support package worth £330bn.
The system was overhauled earlier this month after firms complained they could not access the cash.
Lord King, who was governor of the Bank of England during the financial crisis in 2008, said the survival of businesses was key to a rapid economic recovery.
He told Sky News: ‘The economy will recover quickly only if we can keep the businesses that existed at the beginning of it still functioning and still able to pick up the reins when the epidemic is over.
‘If we find so few business loans being granted, something has gone wrong.’
He added that local bank branches should not have been closed because they could have helped answer questions of businesses trying to apply for the loans.
Business owners have warned the failure of the loans system means they will not be able to pay staff at the end of the month and will go bust.
Banks have been overwhelmed by demand since the Coronavirus Business Interruption Loans Scheme was launched on March 23.
The federal government is on the verge of the lending limit on its Paycheck Protection Program that is funneling relief money to the nation’s struggling small businesses amid record unemployment
They have been accused of refusing loans due to firms failing to meet complex eligibility criteria.
Critics have questioned why the initial pool of lenders was just 40 and why more support was not given to banks to keep local bank branches open to tackle the workload.
Last week government officials overseeing the initiative widened the pool of participating lenders, adding the Co-operative Bank, Cynergy Bank, Oak North Bank and Starling Bank.
Some of Britain’s largest non-bank lenders, including Funding Circle, Iwoca and Market Finance, which together have provided loans worth billions of pounds to small companies, hope to receive approval to join the programme within days.
Smaller firms have complained they are struggling to get the help they need as most banks are still not offering loans under £25,000.
Complaints from prospective borrowers prompted the government to ban the use of personal guarantees on loans of less than £250,000 made via the scheme, but this has reduced the appetite for the scheme among some lenders.
The Financial Conduct Authority on Tuesday wrote to banks demanding they boost lending.
Meanwhile, the Treasury has extended the cut-off date for the Coronavirus Job Retention Scheme so employers can claim for furloughed employees who were on their payroll on or before March 19.