Small businesses are to be offered debt relief by Britain’s banks, building societies and credit card providers if their money dries up during the Covid-19 outbreak.
UK Finance, which represents all the big lenders, said that its members would offer support for affected small companies and individuals in the form of overdraft extensions and repayment relief. The commitment follows indications that the Bank of England and the Treasury were designing some kind of bridging finance for small businesses hit by supply chain disruption.
Andrew Bailey, the incoming governor of the Bank, told MPs yesterday that small companies would need help to ensure that they did not go bust by running out of cash as a result of problems caused by the outbreak. “The Bank is already working on what these tools could look like; the right way to incentivise lending to support supply chain finance,” he said.
Mr Bailey and Mark Carney, the outgoing governor, have both said that a rate cut could come before the Bank’s scheduled meeting on March 26. The Bank was “still looking at the evidence and what the shock is likely to be”, Mr Bailey said. “Monetary policy can always move in a timely fashion.”
UK Finance said its members would help by delaying loan repayments, extending loan terms and providing larger overdraft facilities on current terms to affected customers. Similar “forbearance” measures were used in the 2009 recession.
If households suffered a drop in income or faced unexpected expenses or bills, lenders were “ready and able to offer support to their customers who are impacted directly or indirectly by Covid-19”, Stephen Jones, chief executive of UK Finance, said. “That could include increasing an overdraft or allowing repayment relief for loan or mortgage repayments.”
UK Finance urged households and companies to contact their finance provider as early as possible. Its announcement came as it revealed that gross mortgage lending fell for the first time since 2010 last year and affordability slowed activity.
Eric Leenders, managing director of personal finance at UK Finance, added that “the remortgage market remains competitive, although the shrinking number of customers coming to the end of their fixed-rate deals will start to impact volumes”.
He said that non-mortgage household borrowing remained “muted, with some people instead opting to increase their mortgage borrowing as a more cost-effective way of managing their finances”.