LONDON (Reuters) - Britain’s government needs to relax lending terms for government-backed loans to smaller businesses to stop them going bust during the COVID-19 lockdown, the Confederation of British Industry said on Thursday.
Finance minister Rishi Sunak has so far rejected calls to give a 100% government guarantee to lending to small businesses, rather than requiring banks to take 20% of the risk and carry out their own, sometimes lengthy, credit checks.
The CBI also said loans should be repayable over 10 years, rather than a maximum six, for businesses that face high fixed costs and low profit margins.
“Helping firms that have fallen through the cracks will protect jobs and livelihoods as the crisis unfolds and ensure a solid foundation to build on,” CBI Director-General Carolyn Fairbairn said.
British banks have so far lent 2.8 billion pounds ($3.5 billion) to small and medium-sized businesses with a turnover of up to 45 million pounds under the government scheme, approving 16,624 loans since the scheme opened on March 23. There is a backlog of around 20,000 loan applications.
Last week Bank of England Governor Andrew Bailey told banks they needed to speed up the pace of lending, and noted emergency loans had gone through faster in countries such as Germany where there is a 100% state guarantee for some credit.
The CBI said there should be simplified procedures for loans under 25,000 pounds and that loans up to 500,000 pounds should benefit from a 100% guarantee as well as an option of repayment over 10 years.
Sunak said on Monday that countries offering 100% loan guarantees did not have an equivalent to the grants available for 80% of the salary of furloughed staff.
The CBI said these grants did not help businesses such as ferry operators or plant nurseries which needed to maintain staff to keep operations going.
Firms that already had high levels of debt - or those such as hotel chains that were too large to benefit from property tax waivers - were also struggling, it added.
Reporting by David Milliken, editing by Estelle Shirbon