Lib Dems lead cross-party call for clarity on coronavirus loan scheme

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.

Wera Hobhouse

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