Thursday 30 July 2020 12:01 am

Treasury tells banks to boost coronavirus lending after rule change

The Treasury has told banks they should be lending more to struggling companies through the main coronavirus loan scheme after changes to EU state aid rules come into effect today.

European Union rules had meant some viable British firms with significant debts or that were growing and spending fast were classed as “undertakings in difficulty”. This barred them from borrowing through the UK’s coronavirus business interruption loan scheme (CBILS).

However the EU changed its rules last month for companies with fewer than 50 employees and less than £9m in turnover. And the British Business Bank which runs CBILS put the new rules into force today.

The Treasury today said it has written to banks “setting out their expectation that these changes will be implemented to ensure more businesses are receiving support”.

It also said it would be issuing new guidance to banks to try help larger businesses access loans. This is because they are not included in the state aid rules changes.

Last week, City A.M. revealed that MPs and Lords had contacted banks asking them to take into account the rule changes. They feared that the alterations may not lead to more lending.

Allie Renison of the Institute of Directors today said: “The onus is now on lenders to heed this development and ensure support reaches where it needs to be.”

Stephen Pegge of banking body UK Finance said: “Lenders will now be able to help more viable businesses.” He said they will “assess any new lending applications against the revised rules”.

Small business minister Paul Scully said the changes “will mean that even more small firms will be able to access much-needed financial support”.

EU state aid rules could still exclude bigger firms

Under CBILS, firms can borrow up to £5m from banks. The government guarantees 80 per cent of the sum.

It has faced criticism, however, for initially lending too slowly and then for having a low approval rate. Just under £13bn has been lent out through CBILS but only around 50 per cent of applications have been successful.

Business groups and the Treasury argued that EU regulations were part of the problem and lobbied to have them removed. The state aid rules are designed to encourage fair competition and stop states propping up failing firms.

Economic secretary to the Treasury John Glen today said: “I’m delighted that our work… has paid off.”

However, business groups remain concerned as the EU’s rule changes do not apply to bigger firms. Those with more than 50 employees or £9m in turnover can still be considered “undertakings in difficulty”.

Kate Nicholls, the chief executive of UK Hospitality, told City A.M. last week that many labour intensive, fast-growing hospitality firms such as restaurants would still be excluded from CBILS.

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.

The Treasury today said it would shortly be issuing new guidance which will help viable larger businesses access support too.