Yahoo Finance Banks 'ask companies to stop paying loans' to get government support
Banks have been accused of telling businesses to stop paying back loans in order to secure state-backed money meant to help them survive the COVID-19 pandemic.
Natalie Ceeney CBE, chair of Innovate Finance, told Yahoo Finance UK she was aware of small and medium-sized enterprises (SMEs) being asked to stop repaying loans in order to secure a coronavirus business interruption loan (CBIL).
“Some of the retail banks are saying to the SME — that’s the cleaner or the gardener or whoever — as a condition of getting the CBILs funding, they’ve got to default on their other loans,” Ceeney said.
Ceeney declined to name specific banks but said Innovate Finance had heard reports of it happening “fairly regularly across a number of lenders.” Over 40 financial services firms are involved in the CBIL scheme, including all major high street lenders.
READ MORE: Businesses plead for urgent support as two thirds furlough staff
“We’ve reported it to Treasury because that just seems perverse,” she said. “We’ve heard it since the start of the scheme.”
Innovate Finance represents the UK’s fintech sector and Ceeney said the actions of banks were adding to pressure on alternative finance providers.
“We are hearing from our members, their customers coming to them and saying we can’t pay you. Even though we can pay you, we’re not allowed to pay you in order to get CBILs funding from the bank,” she said.
Requests from banks for businesses to ask for payment holidays or stop paying loans “imposes an even greater squeeze on liquidity” for many alternative lending businesses, Ceeney said.
The founder of online business lender Capify told Yahoo Finance UK his industry could be “decimated” without state support due to the COVID-19 funding squeeze.
CBILs were announced by the Treasury last month as part of a £330bn ($412bn) package of measures meant to help the UK economy survive the coronavirus lockdown. The government said it would stand behind 80% of the value of loans extended to small and medium-sized businesses, reducing the risk for banks.
A spokesperson for the Treasury told Yahoo Finance UK: “We’ve taken action at unprecedented speed to help businesses, jobs and our economy during this crisis – with hundreds of thousands of firms across the county benefitting from our wide package of support.
“Our business interruption loan scheme has already seen 6,000 loans approved, worth around £1.1bn. We’re working closely with banks to ensure that the scheme works and we get this support out to those who need it as soon as possible.”
A spokesperson for UK Finance, the trade body for the banking sector, said it wasn’t aware of banks asking SMEs to defer other loan payments and so couldn’t comment.
The claim that banks are requiring SMEs to default on other obligations is another sign of dysfunction in the government’s flagship scheme.
READ MORE: Just £1bn of promised government coronavirus loans reach small businesses
Critics say banks are moving too slowly, with only around 6,000 loans approved out of 300,000 expressions of interest. Banks have also been criticised for asking business owners for personal guarantees on loans and charge high interest rates.
Bank of England governor Andrew Bailey added to criticism of the speed of banks on Friday, saying they should “put their backs into it and get on”.
“It does have to be tackled because otherwise it will destroy people’s livelihoods,” Bailey said, according to the Telegraph.
The Treasury is facing calls to increase the state loan guarantee to 100%, copying lawmakers in Germany and Switzerland. A 100% guarantee would lead to looser checks on loan applications and increase the speed at which cash reaches businesses. However, the chancellor fears a 100% guarantee would ultimately lead to higher losses for the taxpayer.
