Banks brace for new bounce back loans boom

UK banks

Banks are braced for a flood of small business customers topping up bounce back loans tomorrow when Rishi Sunak reopens the Covid-19 rescue scheme, even after a £38bn lending spree.

The chancellor was forced to allow top-up loans and extend the new applications deadline from November to January after England was plunged into a fresh lockdown last week.

NatWest estimated that about a third of its existing bounce back loan scheme (BBLS) customers — almost 100,000 businesses — could be eligible for a top-up because they did not borrow the full £50,000 the first time around, or reach the 25%-of-revenue threshold.

The bank, more than 60% owned by taxpayers, has already lent about £8bn of BBLS loans, which are 100% state-guaranteed. The scheme has been beset by allegations of fraud, and the National Audit Office has warned that up to 60% of the borrowing may never be repaid.

Scrutiny of other emergency loan schemes is mounting. The Sunday Times today highlights interest rates charged through the coronavirus business interruption loan scheme (CBILS), which allows businesses to borrow up to £5m, with the Treasury covering interest payments for the first year. To date, 73,094 of loans worth more than £17bn have been granted under CBILS.

While high street banks charge less than 6% interest on CBILS, other lenders, which are unable to borrow at the same low rates as big banks, can charge up to 14.99% in annual interest. The fees are covered by taxpayers in the first year.

Conservative MP Kevin Hollinrake, chairman of the all-party parliamentary group on fair business banking, said: “I’m really surprised that these companies have got access to CBILS and are able to charge these kinds of punitive rates.”

Liberal Democrat leader Sir Ed Davey said government failures had forced small businesses to turn to loans. The Treasury acknowledged that loans were not the “right answer” for all firms and said it had also handed out grants, extended furlough and deferred tax.

There are calls for more emergency schemes to be extended. The aviation industry is calling for the covid corporate financing facility (CCFF) — a 12-month lending scheme from the Bank of England set up to allow big businesses to sell commercial paper on favourable terms — to be extended for five years.