The Liberal Democrats have led a group of 25 cross-party MPs in demanding the government sets uniform lending requirements for its coronavirus business loan scheme in order to increase the speed at which banks approve loans.
Liberal Democrat MP Wera Hobhouse wrote to business secretary Alok Sharma to urge him to “specify a minimum level of underwriting required for the business interruption loan scheme” to ensure that “all financial institutions working to provide loans would be clear about the minimum level of due diligence”.
It comes as a group of eight Devon Tory MPs, including former attorney general Geoffrey Cox, wrote to the UK’s major banks this weekend to say they were “not fully living up to the government or the public’s expectations of them in this emergency”.
“We have received many communications from our constituents detailing examples of an apparent unwillingness or tardiness of the banks to lend to established businesses in this unprecedented public health emergency,” they wrote.
The government’s £330bn coronavirus loan schemes – the coronavirus business loan scheme (CBILS) and the coronavirus large business loan scheme (CLBILS) – have been widely panned since their roll out.
The banking sector has been criticised for the loan approval process taking too long and for it being too restrictive for struggling businesses.
As of Thursday, just 16,624 loans worth £2.8bn had been approved in the scheme’s first month.
The government has advised banks to only lend to businesses that were financially viable before the coronavirus outbreak, however there is not a definition of what this entails.
Hobhouse’s letter, seen by City A.M., was signed by all 11 Liberal Democrat MPs, along with MPs from five other opposition parties, including former Labour frontbencher Clive Lewis.
“An example of the guidance we are looking for would be the government telling loan providers to approve loans on the basis of averaged profits for the last two years of trading,” Hobhouse wrote.
“This would enable banks to process a significant proportion of loans quickly, leaving more time for the more complex cases, that require a full review.”
In response to the letter, a government spokesperson said: “The government is making sure that businesses have access to the support they need as quickly as possible, with almost £3 billion of loans already made available.
“We are working with banks, lenders and the British Business Bank to ensure loans are processed as smoothly as possible, including restricting personal guarantees and adding new lenders to the scheme.”
The chief of UK Finance, Britain’s bank lobby, said at a recent Treasury Select Committee hearing that the government’s pledge to underwrite 80 per cent of each loan and not 100 per cent was slowing down the lending approval process.
The Swiss government is underwriting 100 per cent of each coronavirus emergency loan, leading to £12.5bn of loans being approved in the scheme’s first week alone.
The Financial Times reported on Friday that chancellor Rishi Sunak was considering underwriting 100 per cent of every loan under £25,000 to speed up the UK’s approvals process.
This would see the government take on all of the default risk for these loans.
The change in policy would be a quick turnaround, after Sunak said last week that he was “not persuaded” by the argument that the government should guarantee 100 per cent of every loan.
Shadow business secretary Ed Miliband and business groups such as the CBI have called for the government to take all the default risk for the emergency loans.