The Liberal Democrats are leading a cross-party call for the Business Secretary to provide clearer guidance to lenders regarding Business Interruption Loans, following reports that lenders have been slow to approve loans to struggling businesses due to extensive due diligence processes.
Liberal Democrat MP Wera Hobhouse has been joined by over 20 MPs from across the political spectrum in writing to the Business Secretary to call for the additional guidance.
The letter asks that the Government sets out the “minimum level of due diligence required” to underwrite loans, criteria which would enable lenders to process applications at a faster pace. This would help to ensure business owners benefit from the scheme as soon as possible.
Wera Hobhouse, Liberal Democrat MP for Bath, said:
Business Interruption Loans offer a much-needed lifeline to businesses which would otherwise face collapse given the COVID-19 crisis. However, lack of clarity on the terms for these loans has slowed access to cash. If nothing changes, we may see many successful businesses fold before their loans are even approved.
The Secretary of State for Business must urgently clarify minimum requirements to underwrite these loans, so that lenders have the confidence to process applications rapidly, channeling funded to where it’s needed and keeping businesses afloat.
Failure to help speed up the lending process risks thousands of businesses – the lifeblood of our economy – collapsing in the midst of the current economic crisis.
The letter reads as follows;
Dear Alok,
I hope you are well.
As a group of MPs we are writing to you asking that you give further guidance to banks, and other financial institutions able to provide Business Interruption Loans. This guidance would be provided to help speed up the delivery of the loan scheme, saving countless businesses from going under at the end of this month.
The nature of this guidance may vary but we suggest that the Government specifies a minimum level of underwriting required for the Business Interruption Loan Scheme. This way all financial institutions working to provide loans would be clear about the minimum level of due diligence required to provide the loans.
Currently loan providers feel obliged to carry out the maximum level of due diligence, which takes weeks, because they do not want to be liable for the 20% (which the Government has not promised to cover) if the loan fails. They have also been asked by Government not to hold business owners personally liable which means that they are uncertain about the process needed to guarantee loans. Different loan providers are applying different tests but almost of them are taking more time then businesses can afford.
The Government has the power to step in and provide clarity. An example of the guidance we are looking for would be the Government telling loan providers to approve loans on the basis of averaged profits for the last 2 years of trading. This would enable banks to process a significant proportion of loans quickly, leaving more time for the more complex cases, that require a full review.
Loan providers could turnaround simple applications quickly, in the knowledge they have met minimum lending criteria as established by the Government, and that if these loans fail then they will be underwritten.
We are living through a global crisis and many business need immediate support.
The Government must be clear with banks, and businesses, about how this scheme should be working in order to make it operational.
Sincerely,
Wera Hobhouse
* Newshound: bringing you the best Lib Dem commentary in print, on air or online.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Josh Babarinde makes the case for his Domestic Abuse Bill
North London's expanse
West End Ward Tuesday Surgeries #dundeewestend
Big brother state
Matthew Radmore
tom arms
Jonathan Brown
2 Comments
This is an important initiative. There are four key strands to the survival of many businesses that will ultimately determine whether we are facing a recession from which there can be a relatively quick recovery to something like the previous state of the economy; or a longer-term depression with the attendant high levels of long-term unemployment that a catastrophic supply shock brings.
The four strands are:
1. Wages subsidies that provide for the retention of furloughed staff on the payroll. There is a problem for businesses that hired staff but did not pay them before 19 Mar and for workers between jobs.
2. Business rate relief in the form of grants for small business occupying premises with a rateable value below 51k and one-year rates holiday for retail, leisure, and hospitality businesses. The big problem here is that different councils are making different interpretations of what qualifies as a retail, leisure, and hospitality business. This lack of consistency is causing major problems for businesses like travel agents or English language schools and the like around the country that are not likely to recover anytime soon.
3. Commercial rents. There is a moratorium on lease forfeiture in place until the next quarter day – June 25th. However, rent liabilities are deferred not waived and for many businesses, they will be unable to meet lease obligations without access to the Coronavirus loan scheme.
4. To be eligible for the Coronavirus loan scheme the business must have a viable business proposal. Banks can only lend on the basis of this criteria, If they make a loam to a business that does not meet the viability test the bank risks losing the shield of the 80% government guarantee and being left on the hook fora 100% of loans that go bad.
This Cityam article gives a flavour of what this means https://www.cityam.com/the-long-read-the-coronavirus-loan-scheme-risks-failing-the-people-it-was-designed-to-help/
The process itself is also complicated and time-consuming, requiring the submission of management accounts, cash flow forecasts, a business plan, historic accounts and details of assets. In contrast, businesses in Switzerland seeking an emergency loan amounting to ten per cent of their annual revenue are required to submit a one-page form, online.
This is an announcement from April 23:
Government to introduce temporary new measures to safeguard the UK high street against aggressive debt recovery actions during the coronavirus pandemic
• statutory demands and winding up petitions issued to commercial tenants to be temporarily voided and changes to be made to the use of Commercial Rent Arrears Recovery, building on measures already introduced in the Coronavirus Act
• landlords and investors asked to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic
High street shops and other companies under strain will be protected from aggressive rent collection and asked to pay what they can during the coronavirus pandemic, the Business Secretary has set out today.
“The majority of landlords and tenants are working well together to reach agreements on debt obligations, but some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics.
To stop these unfair practices, the government will temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June, where a company cannot pay its bills due to coronavirus. This will help ensure these companies do not fall into deeper financial strain. The measures will be included in the Corporate Insolvency and Governance Bill, which the Business Secretary Alok Sharma set out earlier this month.
Government is also laying secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.
This will further safeguard the high street and millions of jobs by helping to protect them from permanent closure during this time. However, while landlords are urged to give their tenants the breathing space needed, the government calls on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too.”
The crunch for many businesses will likely come at the end of June.