The royal exchange

Coronavirus loans: How the banks have performed

CBILS is really on its third lifeline at present. Since its high-profile launch by the Chancellor on 23 March, it was then amended on 3 April and again (albeit this missed most of the headlines) on 27 April.

The news which took away all the attention from the CBILS changes last week was the launch of the Bounce Back Loan Scheme. The new micro loan scheme fills a much-needed area of weakness and answers calls from businesses and banks alike for a simplified approach to monetary support with a greater guarantee by the government.

CBILS underperforms

With less than 26,000 loans approved by the original 42 lenders after five weeks of operation, the CBILS schemes have unsurprisingly garnered low approvals’ rates. Therefore, UK Finance agreed to abide by the Chancellor’s reforms announced by the British Business Bank and Treasury on 27 April, and would “only ask businesses for information and data they might reasonably be able to provide at speed”.  

It continued: “We will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability.” And yet, this still doesn’t appear to be happening.

Research conducted amongst The CFN’s member firms up to 5 May shows that only 1% of clients have discussed CBILS with their accountant and only 36% of those have actually submitted a completed application to a lender.

Some may be holding off applying until they understand the amount of finance they will require once lockdown is eased. But some were immediately deterred by the sheer amount of work needed in order to complete the forms. And yet, even since UK Finance’s announcement on 27 April, Funding Circle appear to be the only lender who is not requesting cashflows.

According to BEIS, banks are able to conduct whatever additional work they require in order to become comfortable with that risk, although that is not a requirement of the scheme.  

It seems that they must not trust their internal credit assessments of their own customers in that case, as underwriting is still causing weeks and weeks of delays before businesses or their advisers can even begin to enter into a meaningful discussion with their bank. It has become a long, drawn out process.

Will fintechs show banks how it is done?

Funding Circle became the first ‘fintech’ accredited for CBILS by British Business Bank and launched their scheme on 30 April.

Given that they have a reputation amongst businesses and introducers for being transparent and quick, albeit more expensive than traditional lenders, there was a hope they could show banks how it was done. 

However, Funding Circle is always going to be restricted by its own cost of capital, which is much higher than the high street banks’. And having been pinned to a maximum rate of 9% APR by British Business Banks, it’s understandably had to cut cloth accordingly.

Funding Circle’s application approach has been a breath of fresh air. It’s clear and simple to apply, whereas the traditional lenders have seemingly preferred to keep their underwriting processes as a dark art.

The smaller lenders such as Askif Finance and the Responsible Finance (CDFI) lenders have been inundated with applications and are dealing with far more volume than they can cope with.

Starling Bank launched its CBILS scheme on Monday 4 May after receiving final sign off from British Business Bank the day before (yes, Sunday). Starling is also likely to be bombarded by their typically devoted customer base this week.

Only today (6 May) have more fintechs and alternative lenders been accredited to the scheme. So time will tell whether they can balance their internal cost of capital with the capacity they have to lend under this tricky scheme.

When the Chancellor announced the 100% guaranteed micro-loan scheme, the profession held its breath to see how these would be delivered. Would the British Business Bank still rely on the high street, or funnel this new scheme through the new kids on the block – the challenger banks and fintechs.

By the date of its launch, only the major high street lenders had been accredited, and so it appeared that the banks had been given a respite and a chance to salvage their reputation with UK SMEs and the press.

The application form was standardised across all lenders, as was the rate of 2.5% and the term of six years. Therefore, if this was ‘normal’ times, you would expect that the only way that banks could differentiate their offering was on service. However, as all businesses were advised to apply via their own bank (if they had one), the competition was largely removed anyway.

How did the banks measure up?

The charge by businesses choosing to apply on launch day (130,000 loans were applied for in the first 24hrs) meant that some banks struggled with their processes. Santander and Danske Bank were the most impressive, with a slick application process and funds arriving in businesses bank accounts within 24 hours.

Lloyds Banking Group (including Halifax and Bank of Scotland) also appeared to recover from the poor media attention from their CBILS statistics, as they too showed that they had mastered the administration of this scheme from the beginning. 

However, Barclays’ customers, RBS/NatWest group and HSBC all suffered from not being able to meet their customers’ incredibly high expectations of a fast turnaround, and those who heard that the funds wouldn’t arrive for a few days, were exasperated. 

After six weeks of trying to access loan support from banks who just could not deliver in the volumes our economy demanded, it’s not surprising that SMEs are frustrated and worried that another ‘slow no’ could be the end of their business. 

History will probably report that the Bounce Back Scheme was extremely successful and saved thousands of businesses, but I don’t think we’ve reached a “happy ever after” ending with the CBILS scheme just yet. There are more chapters to be written in that story yet, Chancellor.



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