More than 110,000 small businesses applied for low-cost finance on the first day of the UK’s “bounce back” loan scheme, underlining the demand for credit to survive the coronavirus lockdown.
Banks providing the loans said they had approved the vast majority of applications and said the money would arrive in bank accounts as early as Tuesday. Software systems held up despite some banks receiving an application every two seconds.
The scheme is aimed at SMEs whose income has fallen because of the lockdown. They have been reluctant to use the main government support programme, the coronavirus business interruption loan scheme (CBILS), because it is more expensive and the application process has been criticised as slow and cumbersome.
The BBL scheme offers loans of between £2,000 and £50,000. They carry interest of just 2.5 per cent and applicants fill out only a short online application form. Companies of any size can borrow up to 25 per cent of their annual turnover. The government will cover interest and fees for the first year, after which repayment begins. Should businesses default, the taxpayer would foot the bill.
With banks reporting an average loan of around £30,000, the total handed out is expected to reach £3.3bn on the first day of the scheme. That is almost as much as CBILS handed out in its first five weeks — it had disbursed £4.1bn by April 28, the latest figure available.
Jonathan Ratcliffe of Offices.co.uk, an online property business, applied to Santander for a BBL on Monday and said the process was “very simple”.
“The only research I needed to do was work out our turnover in the last financial year — and input around five pieces of information, such as company number, address, turnover, bank account details and of course how much we needed to borrow,” he said.
Anne Boden, chief executive of Starling Bank, told the Commons Treasury select committee on Monday that bank IT systems were already “coming under strain” because of the number of applications. “I think this scheme is going to be very, very popular,” she said.
She added that the scheme was smoother than CBILS, which was based on the government’s existing Enterprise Finance Guarantee — a state programme designed to increase lending to SMEs after the financial crisis. “That old scheme was intended to take one loan at a time and somebody sit at laptop or screen and key all the details in . . . if we have to do so many loans so quickly that doesn’t work.”
David Oldfield, chief executive of commercial banking for Lloyds Banking Group, told committee members that banks could approve BBLs for existing customers quickly. “Unlike CBILS, the obligation is not on the bank to undertake viability and affordability testing,” he said.
RBS, the biggest SME lender by volume, said it received 30,000 applications on Monday. By 4pm Santander said it had almost 18,000 applications and had paid out to over 200; by 5pm Lloyds had had 26,500 applications.
HSBC said had received 19,800 applications from existing customers asking for £650m. It also had 14,700 requests for loans from new customers. Of the 10 lenders using the scheme, only HSBC is offering loans to non-customers, but they will first have to undergo money laundering and other checks.
Barclays bank said that by 2pm on Monday, it had approved 6,000 BBLs with a value of £200m.
Mike Cherry, national chairman of the Federation of Small Businesses, said: “Day one feedback on the bounce back loan scheme has been mixed. Some have submitted their short application forms with no trouble at all, others have been told to wait for forms to arrive, and some have struggled to make an application due to site failures.” He urged more lenders to join the scheme urgently.
The Prudential Regulation Authority, the financial regulator, told banks they could adjust their credit risk assessments and exclude BBLs from leverage calculations, since the government was offering a 100 per cent guarantee.