Take-up of the latest British government 100%-guaranteed coronavirus business loans has been extraordinarily fast compared with existing schemes, with Lloyds Banking Group PLC alone receiving 5,000 applications by 10 a.m. on May 4, and HSBC Holdings PLC taking 200 applications in the first minute of the scheme going live, MPs were told.

The U.K. Parliament's Treasury Select Committee quizzed all the main high street banks, along with challenger bank Starling Bank Ltd., on their response to the COVID-19 crisis.

The government's latest assistance for businesses, called the Bounce Back Loans, is aimed at the smallest end of the business market, offering between £2,000 and £50,000 at a maximum of 25% of turnover, fixed at 2.5% interest over six years with no interest payable in the first year.

This scheme comes in response to criticism of the government for failing to offer 100% guaranteed loans to firms affected by the pandemic at the start of the crisis.

The government's initial state-backed Coronavirus Business Interruption Loan Scheme, or CBILS, aimed at smaller firms offers loans with an 80% state-guarantee, but the scheme has drawn criticism for providing a far slower take up rate than similar schemes in Germany and Switzerland, for instance, which are backed with 100% state-guarantees.

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David Oldfield, group director and CEO of commercial banking for Lloyds, told MPs that the average application received on May 4 for Bounce Back Loans was for £35,000, compared with an average of £250,000 for CBILS.

Amanda Murphy, head of commercial banking U.K. for HSBC, said the bank launched the Bounce Back scheme at 8.30 a.m. on May 4 and received 200 applications within the first minute of going live.

"All 200 of these applications were fully approved and we expect the cash will get to claimants in about 24 hours," she said.

The banks said that claimants who had already received a loan under CBILS for less than £50,000 would be offered a switch to the Bounce Back scheme that offered a better deal. Loans under the CBILS process are offered at slightly different rates by each individual bank in the scheme — Lloyds said it is charging a maximum of 5% interest with an average rate of 3% for instance — while Bounce Back loans are offered at the same rate by all banks.

'Helpful factors'

Analysts at Goodbody noted that the Bank of England has confirmed that loans issued under the Bounce Back Loan Scheme will be excluded from the calculation of U.K. leverage ratios, while lenders that are participants in the BoE's Term Funding for SMEs scheme can extend some of the funding accessed to align with the six-year term of loans issued under the Bounce Back scheme.

"These are surely helpful factors in the context of stimulating banks to lend and, once again, serve to demonstrate the regulator's pragmatism at this time of crisis," said John Cronin of Goodbody in a note to investors.

All the main high street banks represented at the hearing were asked whether roll out of the CBILS scheme was too slow in comparison with similar schemes in other countries.

Oldfield said the bank had approved eight out of ten applications under CBILS, while Matt Hammerstein, CEO of Barclays PLC's ring-fenced U.K. arm, said his bank had approved 90% of all applications. All the banks represented at the hearing said the U.K. scheme differed from the European schemes with its level of state-guarantee.

"The key difference is that some European schemes have had 100% guarantees from day one. [With CBILS] we have to go through viability and affordability criteria with applicant. Some businesses were not viable pre-COVID 19 and are not able to get money through the banks as responsible lenders," said Oldfield.

'Scheme in a box' shortcomings

The bank representatives also said that since CBILS is based on an existing scheme, the Enterprise Finance Guarantee scheme, this might have slowed the process for customers since there were certain requirements of the EFG that made it relatively time-consuming.

"I think the [Treasury's] thinking was that 'we have a scheme in a box, the EFG, we know it works, let's use something that we know starting today for the benefit of speed and iterate it as we go along,'" said Oldfield.

Anne Boden, founder and CEO of challenger digital bank Starling, said the lender was funding other financial technology companies that were working on ways to use automation to process loans. She also said that the slow roll out of CBILS was in part due to the lack of automation in the process, particularly the connection between the banks in the loan scheme and the British Business Bank, which manages the scheme through accredited lenders. Boden said this was in the process of being rectified as automatic processes were developed that should start to be available more widely in six weeks or so.

On CBILS, aimed at supporting medium-sized and larger firms with an annual turnover of £45 million, the banks said applicants might opt for existing lending facilities as an alternative.

"We have increased our lending by £8 billion in March alone to these sized firms," said Oldfield.

He also suggested that the government or banks might have to start looking at taking equity stakes in firms that were not in a position to take on more debt.