Wednesday 22 July 2020 4:38 pm

Exclusive: MPs ask banks for clarity on state aid rules and coronavirus loans

Save our SMEs

A group of MPs and Lords has written to lenders to try to ensure they take into account changes to EU state aid rules that could boost the UK’s coronavirus loan scheme, amid confusion about the alterations.

It came as business group UK Hospitality urged the government to take the lead and make sure the changes result in banks lending more to struggling firms.

Read more: Treasury welcomes change in state aid rules for government-backed loans

Under the Treasury’s coronavirus business interruption loan scheme (CBILS), firms can borrow up to £5m from banks. The government guarantees 80 per cent of the sum.

But the European Union’s competition rules stopped firms deemed to be “undertakings in difficulty” from receiving loans.

It meant some viable companies with significant debts or that were growing fast and burning through share capital missed out on loans. The CBILS approval rate is only 50 per cent.

Read more: More SMEs eligible for coronavirus loans under rule change

The EU changed the rules last month, however. And the British Business Bank that runs CBILS will put them into effect from 30 July.

Firms with fewer than 50 employees and less than £9m in turnover will no longer be considered “undertakings in difficulty”. Business groups say it could make a “real difference” for some companies.

MPs and Lords push banks on state aid changes

However, the all-party parliamentary group (APPG) on fair business banking today raised concerns that the changes were not filtering through to banks’ lending criteria and said there was confusion about the alterations.

The APPG is an informal House of Commons group that seeks to improve the relationship between banks and businesses. It is led by Tory MPs Kevin Hollinrake and William Wragg.

In a email seen by City A.M. it asked bank chief executives to “confirm the steps you have taken to ensure that your relationship managers and risk teams are aware of the provisions”.

Read more: Companies borrow £48bn through UK coronavirus loan schemes

The group said many firms had been rejected for loans under the old rules. It asked: “What action is the bank taking to proactively contact these customers to encourage them to re-apply?”

Banks said they are still figuring out what difference the changes will make to their lending under CBILS. A Santander spokesperson said: “We are currently considering what these changes mean ahead of them coming into effect.”

Hospitality group presses government to do more

Kate Nicholls, the chief executive of UK Hospitality, told City A.M. she was concerned that the state aid rules changes do not extend to large companies.

Many labour intensive, fast-growing hospitality firms such as restaurants would still be excluded from CBILS, she said.

Nicholls argued that the Treasury could “widen” its interpretation of the EU rules. “The UK government has had one of the strictest definitions of an undertaking in difficulty,” she said.

“We need the Treasury to move towards a more realistic assessment of an undertaking in difficulty for CBILS,” she said. “We understand from discussions with the European Commission that that is entirely a matter for the UK Treasury to determine.”

Read more: Government must tackle £35bn corporate debt crisis, warn City bosses

But the Treasury said that it is up to banks to interpret the regulations. A spokesperson said: “We encourage lenders to take full advantage of the flexibilities within existing EU state aid rules.”

“We’ve been actively engaging with the European Commission to ensure the UK’s coronavirus support schemes are accessible to as many firms as possible.”

Treasury set to release new lending guidelines

The Treasury is set to publish guidelines for banks about the state aid rule changes in the next week or so, City A.M. understands.

Chris Wilford, head of financial services policy at the CBI, said: “It still remains to be seen how this will play out here for those mid-tier firms who may still fall foul of these rules.”

“Many of these are important regional employers and critical to our recovery.”

Read more: JP Morgan sets aside $10.5bn to cover loan defaults due to coronavirus pandemic

Stephen Pegge, director of commercial finance at banking body UK Finance, said: “We expect this change would make a real difference for some businesses.” But he said it is “unlikely to be transformational”.

“Firstly because it was only a minority of businesses that were affected by these rules beforehand. And secondly because they’ve still got to be viable and the lending affordable.”

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