The Question was considered in a Virtual Proceeding via video call.
The Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Loan Scheme have been developed to provide financial support for UK businesses that have been impacted by the coronavirus outbreak. There will be no limit on the number or aggregate value of loans that lenders can issue through these schemes. As of 29 April, over 25,000 loans, worth over £4 billion, have been provided to businesses under the two schemes.
My Lords, this money is needed urgently, yet many businesses are encountering problems in getting access to it. For example, long-standing and profitable firms whose cash flow was perfect before the Covid-19 outbreak now apply to banks and are told that they cannot have the money because they do not have the cash flow. This is a Catch-22 situation. It is supposed to be emergency assistance. The Treasury issues guidance but on the grounds the banks are dragging their heels. Unless that culture is changed, good businesses will go to the wall. What are the Government doing to lean on the banks to change this very damaging culture?
I thank the noble Lord for his question; he makes a good point. We have received lots of helpful feedback from stakeholders on how the schemes have been working. He will be aware that, on Monday, the Chancellor announced further steps to ensure that lenders have the confidence they need to process these applications. We have removed the forward-looking viability test and the per-lender portfolio cap, to give lenders the full 80% guarantee across all CBILS lending. We keep the scheme under constant monitoring and are available for any future changes.
My Lords, although business is very grateful for the help that the Government are giving, including the new bounce-back loans, which are 100% guaranteed up to £50,000, the Minister said that just £4 billion has been given to 25,000 companies in the six weeks since the scheme launched. Will the Government consider guaranteeing up to £500,000 for 100% of the banks, as the Swiss and the Germans have? This will ensure that the money gets through to the companies that need the money now to survive this crisis and then the revival and restart. Will he also confirm that the portfolio guarantee limit of 60% per bank has been removed, and that it is 80% or 100% back to back?
The new bounce-back loan scheme that the noble Lord referred to will ensure that the smallest businesses can access loans from £2,000 to up to £50,000 in a matter of just days, capped at 25% of the firm’s turnover. On his second point, we have also removed the portfolio cap for loans under the CBIL scheme, meaning that lenders can access the full 80% guarantee for each loan.
My Lords, I too have spoken to a large number of businesses that are trying to get CBILS loans. The reality is that they are just not able to get them; they are being turned down. Will the Government consider two suggestions: first, that the government guarantee is for the first 80% of the loan, not pro-rata but for the initial amount; and, secondly, that the current restrictions on EIS and ECT investments in businesses are relaxed, despite EU restrictions, and the set-off rates against income tax are increased? I appreciate that to do this we would need urgent legislative change, but it is required.
I thank my noble friend for raising those points. The 80% guarantee on lending under the CBIL scheme is already extremely generous and we have not seen a lot of evidence to suggest that this is acting as a significant barrier for lenders. On his suggestions, we are of course subject to the EU state aid rules. Even though we have left the EU, under the terms of the withdrawal agreement we still have to apply those rules.
My Lords, so that lessons can be learned and in the spirit of more transparency, will the Government ensure that financial help given under these schemes will be clearly disclosed and not buried in business accounts, so that in time we can assess what was achieved in supporting jobs, businesses and indeed the community?
My Lords, will the Government take up the proposal made by my colleague Ed Davey to set up a website for lenders and products in the various support schemes along the lines of Compare the Market, so that firms can quickly identify which lenders would be willing to lend to them? They can then approach that institution and get money much more quickly.
I thank the noble Baroness for that suggestion, but the British Business Bank’s finance hub already provides full details on CBILS and our other loan guarantee schemes, including all details of accredited lenders. In addition, businesses may use one of the BBB’s designated online referral platforms, which may help them to find finance providers offering the product they are looking for.
My Lords, I declare my interests as shown in the register. Under the British Business Bank’s revised eligibility guidelines, start-up companies whose losses have been financed by share- holders through long-term loans are ruled ineligible under EU state aid rules, which define companies whose accumulated losses exceed half their paid-in capital as “undertakings in difficulty”. That is the case even when they turn profitable and their accounts have been signed off as going concerns. Does the Minister not agree that the BBB should allow lenders to apply more flexible eligibility criteria to companies carrying long-term debt, which is in effect a form of capital, and that the EU definition of many such companies is misleading and inappropriate?
We are constantly reviewing the loan guarantee schemes to make sure that as many businesses as possible can benefit from them. That is why we made the changes that I referred to earlier in the week. As I said to an earlier questioner, although the UK has left the EU, under the terms of the withdrawal agreement we are still subject to EU state aid rules.
My Lords, does the Minister agree that once the current, very welcome, liquidity initiatives to soften the supply shock to the UK economy have done their work, it will be necessary, as in other economic downturns, to bring forward plans to stimulate demand and to deal with rising unemployment? Will the Minister confirm that such plans are being developed and can he share with us the likely timing?
Of course, at the moment we are focused on delivering the support that businesses need now, but we will continue to monitor and review all the schemes, now and in the future, to make sure that they are working effectively and helping businesses to get the support they need.
Is the Minister aware of reports that some banks are requiring companies to freeze all loans and leasing with other financing institutions before agreeing loans, and that some are charging for personal contact despite arrangement fees being picked up the Government? Is such conditionality and charging allowed?
The noble Baroness makes a good point, but we have provided a generous guarantee scheme and we fully expect that all businesses will benefit from such schemes and that banks pass on the savings to borrowers. We have removed the forward-looking viability test, as I said earlier, but we constantly monitor all these schemes and seek to improve them where possible.
My noble friend makes a very good point—fintech has a significant role to play. Funding Circle, as he will be aware, was recently added as a CBILS accredited lender. Along with other alternative finance providers, it will help even more businesses to access the finance they need at this difficult time.
Will my noble friend comment on the interest rate charged on the loans and say whether there is a cap on that rate? Are penalties allowed for early repayment, which would obviously be detrimental to the future of firms? Also, following on from the suggestion made by my noble friend Lord Leigh of Hurley, is there any intention to help firms by providing finance for equity investment rather than debt only?
The business interruption payment means that the borrower benefits from no fees or interest in the first 12 months. Interest rates are then charged at the discretion of each lender. However, under the terms of the state aid agreement, the Government fully expect that the benefits of the guarantee under CBILS is reflected in the interest charged by the lender both during the period of the business interruption payment and thereafter, for the remainder of the facility.