UK Finance Minister Rishi Sunak plans to offer 100% state guarantees on loans to small businesses affected by the coronavirus pandemic amid criticism of delays in the government’s loan program.

The United Kingdom Coronavirus Business Interruption Scheme, or CBILS, offers 80% state guarantees on loans up to £ 5million for companies with a turnover of less than £ 45 million. But ones banks are required to cover 20% of the risk, the pace of loan approval under the program has been slow compared to other countries such as the United States, where loans are 100% guaranteed by the State.

Stephen Jones, CEO of UK Finance which represents the banks, told Parliament on April 15 that the loan scheme could be simplified for loans below £ 25,000 where “there is a huge volume and possibly the biggest backlog” , and urged critics of the program to be patient.

Now Sunak, who previously said he was “not convinced “that offering all guarantees was the right thing to do, plans to create a new microenterprise scheme that would offer full state guarantees on loans of up to £ 25,000, to work alongside CBILS, the Financial Time reported April 24.

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Need of speed

Many small businesses rely on overdrafts on their bank accounts to fund themselves, and banks have come under heavy criticism from business groups for responding too slowly to CBILS. Among them, the Federation of Small Businesses criticized the process of applying to banks under the loan program.

“We always hear from members that even getting to the application stage for a CBILS loan is a nightmare – and these are companies that inquired when the program was first launched. For those who are approaching banks for the first time times, getting a hearing is even more difficult, ”FSB Chairman Mike Cherry said.

The Confederation of British Industry has also criticized the rapidity of the rollout of the program.

“As the pace picks up, many companies are still absent. More loans must be made more quickly to businesses facing difficulties, especially small businesses. more companies to take them over are two ways that could make a difference, ”said Rain Newton-Smith, chief economist at the CBI.

UK Finance figures released on April 23 showed UK banks to have granted more than £ 2.8 billion in loans to small businesses through the coronavirus loan program. Total loans under CBILS doubled in the week to April 23, increasing by £ 1.45 billion, while the total number of loans approved increased by more than 120% during the week to reach over 16,600, according to data.

“We expect lending to continue to grow rapidly in the coming weeks,” UK Finance told S&P Global Market Intelligence on April 23.

The FSB, along with the Institute of Directors, also called for full transparency on lending by individual banks. More than 40 lenders are part of CBILS and the government has not imposed a limit on the loans available under the program. Prior to UK Finance figures of April 23, a single bank, the state-owned Royal Bank of Scotland Group PLC, was responsible for half of all loans issued, approving 5,600 loans amounting to $ 937 million. pound sterling. HSBC had approved 2,026 loans.

Barclays PLC said on April 23 that it had approved 2,971 CBILS loans worth £ 586 million.

“It appears that some banks are doing the heavy lifting on the CBILS front. We urgently need full transparency on loan conversion rates, loan sizes and timeframes by bank, including data on refusals, ”Cherry said.

Country comparisons

UK banks initially required personal guarantees for CBILS loans below £ 250,000, although this has now changed and, unlike Other leading economies, the UK scheme is only 80% guaranteed by the state, not 100% as in the US, Germany and Switzerland.

In the United States, Small Business Administration coronavirus loans under the Paycheck Protection Program are 100% government-guaranteed, with no collateral requirements, personal guarantees, or fees.

The program was so successful that the SBA ran out of funding in less than two weeks, depleting its initial $ 349 billion after processing 1.6 million loan applications. None of the 5,000 lenders accounted for more than 5% of the total program amount, and 74% of the loans were less than $ 150,000. US officials subsequently approved an additional $ 310 billion for the SBA’s emergency loan program.

Germany initially offered 80% state guaranteed loans to businesses affected by the coronavirus, but has since offered 100% state guarantees for the loans. It received 15,000 applications for about 27 billion euros under its initial loans guaranteed at 80% and 90%, according to KFW, the public development bank which coordinates the program. German authorities did not disclose the number of accepted claims, but said 90% of claims for amounts below € 3 million were approved.

The Swiss finance department said loans guaranteed so far amounted to CHF 16.4 billion. The country offers 100% state-guaranteed loans and has 123 participating lenders.

French media said 40 million euros in loans had been granted under the French coronavirus program.

In the UK, in addition to the CBILS, there are also programs for companies with a turnover of over £ 45million which can apply for up to £ 25million in funding while those with a turnover of over £ 45m. Business exceeding £ 250million is eligible for up to £ 50million in funding.

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