Crisis SME loans double to £2.8bn but doubts persist

The value of loans to small and medium enterprises (SMEs) under the government's coronavirus business interruption scheme (CBILS) doubled to £2.8bn in a week but critics still said the pace was too slow.

Total lending by banks to SMEs under the scheme increased by £1.45bn between 14 April and 21 April, trade body UK Finance said. More than 9,000 loans were made in that time, taking the total to more than 16,600.

The figures show loans being made more quickly after a slow start to the scheme, which is meant to tide over viable small businesses during the economic shutdown forced by the Covid-19 crisis. But critics said loans were still not getting to struggling businesses fast enough.

The Institute of Directors business group said it was positive to see the scheme picking up pace but that more needed to be done. More successful schemes in Germany and Switzerland provide 100% backing for bank loans compared with 80% in the UK.

Tej Parikh, chief economist at the Institute of Directors, said: "There are still swathes of businesses facing processing delays and restrictive viability criteria, and many are reluctant to engage with the system at all.

“The government must consider reforms to improve the scheme, from raising its backing of small loans to helping more non-bank lenders play their part. We need to explore how to make the affordability criteria clearer, more consistent and less stringent, while looking at other routes such as overdraft facilities."

The scheme has been criticised after Chancellor Rishi Sunak said he would do whatever it takes to save healthy businesses during the Covid-19 lockdown. Banks originally asked business owners for personal guarantees, which the government then banned, and have offered many SMEs commercial loans instead of 12-month interest-free loans backed by the government.

Ed Miliband, Labour's shadow business secretary, said the figures showed the scheme was not up to the job required by the scale of economic distress and called for the government to improve it urgently.

“Providing 16,000 loans in four weeks in a country of nearly 6m SMEs is not good enough," Miliband said. "In an average week last year there was more than £1bn of new SME lending. The fact that CBILS are now only at that level at a time of the worst economic emergency in our lifetimes is a clear sign that they are inadequate."

Bank of England Governor Andrew Bailey said on Wednesday the scheme was not working properly and that he was pushing banks to lend more. Sunak has said he is not convinced that a 100% loan guarantee was justified because the government has provided unprecedented support for businesses during the crisis.

Stephen Jones, chief executive of UK Finance, said: "The banking and finance sector understands the critical role we have in helping businesses through these tough times. Frontline staff have been working tirelessly to get money to those viable businesses that need it as quickly as possible."