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Covid-19: Business Interruption Loans

Volume 803: debated on Wednesday 22 April 2020


Asked by

To ask Her Majesty’s Government what lessons they have learned from the experience of Switzerland, Germany and the United States in ensuring that businesses have easy and speedy access to Coronavirus Business Interruption Loans.

The Question was considered in a Virtual Proceeding via video call.

My Lords, we are constantly reviewing the Coronavirus Business Interruption Loan Scheme to make sure that businesses can access loans quickly and easily. This includes looking at what other countries are doing in order to inform our own scheme’s design. Changes that we have made to eligibility tests mean that even more UK businesses are able to apply to the CBILS and we are working with the British Business Bank and lenders to ensure that we are doing what we can to speed up lending. As of 15 April, 6,020 loans, worth a total of £1.1 billion, have been given out to SMEs. We expect to see this increase substantially when weekly figures are published tomorrow.

My Lords, I draw attention to my interests in the register. Given that there are more than 5 million SMEs in this country and fewer than 1% have formal applications being considered or approved under the Coronavirus Business Interruption Loan Scheme, amounting to just over £2 billion, how many businesses do the Government expect to fail as a result of the lockdown? Given the Chancellor’s promise to “do whatever it takes” to see the UK through this crisis, why is he rejecting the advice from the Governor of the Bank of England, the Bank’s chief economist, three former Chancellors, a former Bank governor and experienced bankers to re-engineer the CBILS to provide a 100% guarantee to ensure the speedy and efficient transfer of cash to desperate businesses?

I thank my noble friend for his question. Of course, the issue of 100% guarantees has been raised by a number of other contributors. It is something that we are keeping under review. However, we think that the structure of the scheme at the moment is appropriate to its function. We do not believe that it is right to put all the cost of these loans directly on to taxpayers. Banks should have some involvement in those loans. As I say, we are keeping the scheme under review.

My Lords, the Government are to be congratulated on the scale of—and, indeed, the welcome adaptations to be made to—the CBILS, but other countries seem to be disbursing more money more quickly to their struggling SMEs. In addition to the point made already about the increase needed to guarantee 100% of loans, will the Government also think of insisting, in the interests of transparency, that the British Business Bank provide details of what loans have been delivered by the 47 accredited lenders?

It is important to remember that not all SMEs will want debt finance. There is a wide range of different support schemes available to businesses, including the job retention scheme and various local authority grants. We will be looking to publish, in the interests of transparency, the full range of offers that have been made to business in due course.

My Lords, I join the noble Lord, Lord Stevenson, in congratulating BEIS, the Treasury and HMRC on the work that they done but, looking at the point in a different way, of those 47 accredited lenders, only the banks have the liquidity to lend at scale. Those banks are generally sticking to their current customers and, today, only six banks are offering CBILS loans to new customers. This is a really important issue. Furthermore, many are not lending below £25,000; about 90% of applications are pitched at that level and below. I was pleased that the Minister said that this was a work in progress. Can he confirm that further modifications are now under consideration and also undertake to ensure that the lack of access for new customers and the exclusion of lower-value applicants are addressed really quickly?

The noble Lord makes a very good point. As I have said, we have already introduced a number of technical changes to the scheme—obviously it was introduced very rapidly. We are keeping all aspects of it under review. The one that he has mentioned is important; we are looking at bringing in new lenders as soon as possible, including Funding Circle, which specialises in smaller loans for companies such as those he talks about. To answer his question: yes, we are keeping this under review, we are seeking to get new lenders accredited as quickly as possible, and we are keeping all other aspects of the scheme under review as well.

My Lords, no one can doubt the Government’s commitment to bridging and helping SMEs bridge these particular unprecedented circumstances but, to follow on from the question from the noble Lord, Lord Fox, what are the Government doing to work closely with the British Business Bank and encourage it to dramatically widen the circle of lenders and, in particular, to embrace the UK’s fintech sector, which can offer so much in these circumstances?

My noble friend makes a very good point. As I said in response to an earlier question, we are looking to expand the pool of lenders as quickly as possible and at Funding Circle. We are working closely with the British Business Bank to make sure that all aspects of the SME market are serviced. The BBB has put in place substantial additional resource to assist with processing applications from new lenders as quickly as possible. On 11 April four new lenders were accredited, and we are looking to get the circle expanded as quickly as possible.

As the Minister said, many businesses do not want to rely on debt or are unable to do so. Some of them are small businesses, such as an independent café whose owner I have been talking to in Sheffield. She had all-risks business insurance. She thought that she was covered for business disruption yet has found that the insurance company refuses to pay. This seems a widespread, almost universal, problem and there seems to be a particular issue around the definition of physical damage and whether Covid-19 is included in it. A couple of US states are taking action to ensure that businesses are paid out. What action are the Government planning to make sure that people with all-risks insurance, in particular, get the cover they reasonably thought they had?

We are aware of the issue that the noble Baroness raises. Typical insurance policies offer cover against business interruption due to specific or notifiable diseases listed in the policy. An optional extension was available in many policies to cover pandemics, but unfortunately the majority of businesses did not choose to take up that option. We do not believe that it is right or feasible to require insurers to pay out retrospectively against a risk that was not covered in their original policy, but there are a number of other support packages available to those businesses at this difficult time.

I welcome the match funding which has been made available to our most innovative start-ups through the Future Fund, but can the Minister clarify how the scheme is going to operate? For example, will companies have a reasonable veto over to whom these loans could be sold on? Investors and executives will have an eye on their cap table, and will private investor capital lent alongside the Government funding qualify for EIS relief?

My noble friend asked two good questions. We are aware of her first point about vetoes, and are considering it closely as we work out the further details of the scheme. As regards her second point, private investor capital lent alongside the government capital will not qualify for EIS relief.

My Lords, I declare my interests as set out in the register. I regret that the Government’s intention to rescue sound businesses whose income has suddenly and completely dried up through the provision of CBILS loans has been less effective than intended as a result of the 20% personal guarantee requirement of some lenders, as pointed out by my noble friend Lord Forsyth. Does the Minister agree that a reduction of the personal guarantee requirement to 10% might make a considerable difference to the conversion rate of loan applications to lifelines extended?

We have made some changes to the scheme so that no personal guarantees are permitted for loans of below £250,000. For loans above that level, lenders are permitted, at their discretion, to require personal guarantees for up to 20% of the remaining loan value. They are never permitted to use directors’ primary personal residences as security, and of course lenders may turn to personal guarantees only post the recovery of business assets. That is a balanced approach which protects CBILS borrowers but, like many other aspects of these schemes, this is something that we will keep under constant review.

My Lords, that concludes the Virtual Proceedings on Oral Questions. We managed to get everybody in on that last Question; I thank noble Lords for keeping their questions short. Virtual Proceedings will resume at 12.15 pm for the Private Notice Question.

Virtual Proceeding suspended.