The British Business Bank (BBB) operates some parts of the Government’s support package for businesses in response to coronavirus. The bank was established in November 2014. Its aim is to improve financing for smaller businesses by designing, delivering and managing UK-wide access to finance programmes.
Regarding coronavirus, the BBB administers:
- the coronavirus business interruption loan scheme for small- and medium-size businesses (CBILS);
- its counterpart scheme for large businesses (CLBILS); and
- a ‘future fund’ to provide public and private sector loans to high-growth, innovative businesses.
Business interruption schemes
The business interruption schemes give companies access to finance in one of several forms, including loans, overdrafts, invoice finance and asset finance. CBILS provides smaller companies with up to £5 million, repayable over up to six years. CLBILS provides up to £50 million over up to three years.
To access the finance, companies apply to an accredited lender, such as the high street banks. The lender assesses the application and, if approved, provides the facilities.
The borrower remains liable for the full debt. However, the lender receives a guarantee from the Government that they would be reimbursed for 80% of each loan if the borrower defaults. The Government also pays the first twelve months of interest and any lender-levied fees for each loan.
Expanding access to CBILS
There were initial concerns about the low take-up of CBILS. UK Finance, the trade body for UK banking and finance companies, suggested this was due to the “surge” of applications. Likewise the Chancellor of the Exchequer, Rishi Sunak, was reported as saying that initial demand for loans was “overwhelming”.
Some commentators attributed the slow take-up to the banks requiring personal guarantees or collateral for the loans. Others suggested that the design of the scheme forced banks to offer loans on commercial terms where possible, reducing the scope of CBILS.
In response, the Government amended the scheme on 3 April. The changes included:
- not permitting personal guarantees of any form for loans below £250,000;
- restricting the guarantees that can be requested for larger loans; and
- removing the requirement that firms were only eligible if they could not access a commercial facility because of insufficient security.
On 12 April, it was also reported that the Government had appointed Richard Sharp, a former member of the Bank of England’s financial policy committee, to oversee the business support package.
As described above, the scheme was also extended to larger businesses on 16 April (through CLBILS).
On 27 April the Government announced further changes intended to speed up the application process for CBILS loans. These changes removed a “per lender” cap for the government guarantee, and changed the viability tests that so that all lenders will need to assess is whether a business was viable before the coronavirus outbreak.
Data on take up of loans
Since 2 April, UK Finance, the trade body for UK banking and finance companies, has published regular data on the number of applications for CBILS loans, the number approved and the total value of lending under the scheme.
The table below summarises this information for selected dates in April. UK Finance said lending is increasing “rapidly”.
CBILS applications, loans and total lending, selected dates, 2020
|2 April||9 April||14 April||22 April|
|Formal loan applications||Not available||Not available||28,510||36,186|
|Total lending||£146 million||£811 million||£1,116 million||£2,825 million|
On 27 April, the Chancellor of the Exchequer said that “more than 20,000” loans have now been approved. UK Finance is due to publish updated figures on Thursday 30 April.
The British Chambers of Commerce (BCC) reported that in the period 8 to 10 April, 2% of companies surveyed said that they had successfully accessed CBILS. BCC also said that 9% of firms had attempted to access it but had been unsuccessful.
The Government has said that accrediting new lenders is a “top priority”. As of 6 April, there were 40 such lenders for CBILS. According to the BBB’s website, this had increased to 48 by 24 April, with a further eight “stakeholder partners”.
The Labour Party has called for loan guarantees to increase from 80% to 100%. Some commentators have argued that this would increase take up and accelerate the approval process by reducing the assessment that lenders need to make. Others have referred to 100% guarantee schemes operating in Germany and Switzerland. Evidence to the House of Commons Treasury Committee suggested that these schemes are delivering a flow of lending that has been “very fast”.
However, it has been pointed out that 100% guarantees increase moral hazard. Academics at the University of Strathclyde identified three ways in which moral hazard might operate in this situation:
- borrower firms might take riskier decisions because of the guarantee, making repayment of the loans less likely;
- companies without a viable long-term future might be encouraged to take out loans; and
- banks, which administer the loans, might take an excessively generous approach to approving them.
One compromise suggestion has been for loans to be 100% guaranteed up to a certain level—for example, £25,000—and 80% guaranteed above this amount. On 27 April, the Chancellor announced new “bounce-back loans” aimed at the smallest businesses, in addition to the existing support package. These will be up to £50,000 with a 100% guarantee to the lender. HM Treasury said that a “short, standardised online application” would “fast-track” loans, allowing access to the cash “within days”. The scheme will launch on 4 May.
The Director General of the Finance and Leasing Association, Stephen Haddrill, has suggested that the supply of credit to businesses should be speeded up by direct lending from the BBB or the Bank of England.
On Thursday 30 April 2020, Lord Fox (Liberal Democrat) will ask the Government “how much money the British Business Bank has disbursed to financial institutions to support British businesses through the COVID-19 pandemic”.
- House of Commons Library, Coronavirus: Support for Businesses, 17 April 2020
- House of Commons Business, Energy and Industrial Strategy Committee, Access to Finance, 31 October 2016, HC 84 of session 2016–17
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