Government COVID-19 business lending hits £62 billion but criticisms persist

According to new figures released by the Treasury, the total value paid out to businesses through the government’s COVID-19 business interruption loan schemes reached almost £62 billion last week. The latest data shows that lending under the various schemes has increased from £57.3 billion in September, to £61.9 billion this month.

Breaking down the amount lent under individual schemes: the Coronavirus Business Interruption Loan Scheme (CBILS), which offers 80 per cent government-backed loans of up to £5 million to SMEs, has lent a total of £17.2 billion to over 73,000 companies; the Coronavirus Large Business Interruption Loan Scheme (CLBILS), which offers similar loans to larger firms, has paid out £4.57 billion to 623 companies.

The Future Fund, which provides government loans matched by private investor funding, has paid out £770.8 million to 745 companies, while the Bounce Back Loan Scheme, which provides 100 per cent government-backed loans up to £50,000 to SMEs, accounts for the majority lent, with over 1.3 million loans paying out a total of £40.2 billion so far.

Despite the amount lent by the schemes over the course of the pandemic, they have come in for significant criticism for a variety of reasons. One central criticism has been that not enough is being lent, with the figure of £62 billion still some way off the £330 billion Chancellor Rishi Sunak pledged to lend to businesses at the beginning of the pandemic.

As BSR covered in this recent exclusive insight, the flagship CBILS scheme has come in for particular criticism in this regard, with the amount lent so far representing a little under a third of the scheme’s initially promised £52 billion.

It has been suggested that the 20 per cent exposure that lenders face under the scheme’s terms (with loans backed 80 per cent by the government) has made many banks unwilling to pay out CBILS loans.

This is backed up by the fact that the Bounce Back Loan scheme, which offers far smaller loans, albeit 100 per cent backed by the government, has paid out almost double the amount in loans that CBILS has.

However, the Bounce Back scheme has also come in for particularly sharp criticism, with concerns that it is vulnerable to fraud. It was revealed last month that the British Business Bank (BBB), which administers the schemes, had raised objections with Business Secretary Alok Sharma ahead of the scheme’s launch.

In May, BBB Chief Executive Keith Morgan wrote to Sharma expressing concerns that the Bounce Back scheme had “very significant fraud and credit risks”. An investigation into organised crime linked to the scheme has since been launched and it has been warned that a combination of fraud and businesses being unable to repay loans could mean that the scheme costs the taxpayer up to £26 billion.

The Bounce Back scheme has also been criticised over concerns that some eligible SME owners have been unable to access the funding that they need. In September, the government called on banks to ensure small businesses weren’t “locked out” of schemes.

Barclays and HSBC have come in for particular criticism, with Barclays accused of “inventing” rules and rejecting Bounce Back applications based on a non-existent regulation. HSBC’s lending scheme, meanwhile, was described as “a complete shambles” by SME bosses.

Mel Stride MP, Chair of the Treasury Select Committee, said: “Accessing these loans may be a question of life or death for some of these businesses. If these reports are true, then it would be very concerning that businesses may be facing lengthy delays or are unable to access the scheme at all. The Treasury Committee would be interested in receiving further evidence in this area.”

Despite all four lending schemes being extended by Rishi Sunak last month, out of the 28 lenders accredited to issue Bounce Back loans, just six have been confirmed as being open to applications from new customers.

The Future Fund, also administered by the BBB, has come in for staunch criticism. Better Capital founder and managing partner Jon Moulton told the Treasury Select Committee in June that the scheme was “badly flawed” and should be scrapped. Moulton asserted that many firms would use government schemes to recapitalise debts via corporate insolvency.

Moulton said: “Some of it’s going to get recapitalised the hard way, known as corporate bankruptcy. I think that number is going to go up quite sharply over the course of the next year, and may persist into the future".

“We have no idea of the magnitude of the difficulty here. If we assume that interest rates remain low, then the difficulties will be low. If interest rates creep up over the course of the next three or six years, then you could have very very much greater levels of default in the numbers."

The Future Fund scheme was also criticised by Keith Morgan of the BBB in his letter to Alok Sharma, in which he questioned whether the scheme would offer value for money.


For more on the impact of COVID-19 on British businesses, check out recent insight:

COVID-19 driving long-term change at UK SMEs.

If your business is struggling during these challenging times, we can help.

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