British Business Bank boss calls for more ‘risk-sharing’ in recovery loan scheme
The head of Britain’s state-owned business bank has called for more risk-sharing in SME lending as she looks at combatting fraud in a new loan scheme.
Catherine Lewis La Torre, who took over as chief executive of the British Business Bank (BBB) in September, told City A.M. there is a need for the market to return to normal but “[we] can’t do that overnight.”
“It would be quite dangerous to switch off the tap but recognising there are more sustainable ways to deliver lending in the market is what the recovery loans are about.”
The Recovery Loan Scheme was announced by Chancellor Rishi Sunak in last week’s budget as CBILS and bounce back loan schemes wind down at the end of the month.
Nearly half of all UK SMEs accessed the government’s loan schemes according to the BBB’s small business finance report published today. This compares to just 13 per cent in 2019.
Gross bank lending surged 82 per cent to £104bn with further demand expected this year.
The bounce back loan scheme was introduced last May after concerns some of the country’s hardest hit businesses were being turned away from the CBILS scheme. The loans were offered with an 100 per cent guarantee from the government but this did not come without its issues.
Fraud concerns
Last autumn the government launched a Covid fraud hotline amid concerns about business loan fraudsters. And in January a National Crime Agency officer warned MPs of the “substantial amount” of fraud in the government’s coronavirus loan schemes.
What has the BBB learned from this as it readies for a recovery scheme? The banking head remained tightlipped about the extent of the fraud but told City A.M. the new recovery loans will be based on CBILS and the bank’s previous guarantee schemes.
“What we’re trying to do… is go back to more of a risk-sharing between the public sector and the private sector. With that comes a responsibility with the lenders to make sure they’re approving loans to viable businesses.”
The scheme, which has a maximum facility of £10m, will offer a government-backed guarantee of 80 per cent on loans, down from the 100 per cent offered in bounce back loans.
There will be no turnover restriction for businesses accessing the scheme and businesses which have already accessed emergency schemes will still be able to access it.
Dropping the guarantee to 80 per cent “will make a difference… in potentially how those loans find a home and those borrowers are looking for that finance as well,” Lewis La Torre said.