UK banks have reported huge demand for “bounce back loans” on the first day of the new coronavirus lending scheme yesterday, with more than 100,000 of Britain’s smallest businesses applying by this afternoon.
The bounce back loan scheme is the latest coronavirus support package for UK firms. Launched yesterday, it offers the UK’s smallest companies loans worth 25 per cent of turnover, up to £50,000, that are 100 per cent guaranteed by the government.
Chancellor Rishi Sunak announced the lending programme following criticism of the flagship coronavirus business interruption loan scheme (CBILS). Companies said banks were reluctant to lend through CBILS without a full state guarantee.
The 100 per cent state guarantee eases the burden on banks. Businesses should receive their cash within days of applying to one of the accredited lenders.
Banks reported very high demand for the loans and said they were already releasing money. The loans are interest-free for the first year with a rate of 2.5 per cent after that.
HSBC said it had received 34,500 applications by 4pm and agreed to lend out £650m. Natwest, which includes RBS and Ulster Bank, had received 30,000 by 6pm.
Lloyds said that by 5pm it had taken more than 26,500 applications. “For those applying today, we expect the majority of payments to be made tomorrow,” a Lloyds spokesperson said yesterday.
Similarly, Santander said 18,000 small firms had applied for loans by 6pm, resulting in £130m of lending with an average loan size of £30,000. It added that it had already paid out £7.5m today.
Barclays said it had approved 6,000 bounce-back loans worth £200m by 2pm. Hannah Bernard, head of Barclays business banking, said: “We recognise that getting funds quickly to small and medium-sized enterprises all across the country is a priority right now, as businesses struggle with the impacts of the ongoing Covid-19 crisis.”
Bounce back loans contrast with CBILS
The wave of activity stands in contrast to the CBILS scheme, under which the government only guarantees 80 per cent of loans.
By last week, 25,000 loans worth £4.1bn had been made through CBILS after it had been open since 23 March.
But small firms in particular said they had found themselves shut out from lending due to onerous applications processes and strict criteria.
The bounce back loan scheme is designed to fix these problems, offering a simplified, online application process. Sunak has said lenders will not need to complete any “forward-looking viability checks”.
Commenting on the launch of the scheme, Federation of Small Businesses chair Mike Cherry said: “We know many small firms have struggled to secure small loans speedily.
“We are pleased that the chancellor has listened, and swiftly developed this new scheme for small businesses to access finance quickly, interest-free for the first year and at an affordable fixed interest rate for the remainder.”