Britain’s finance minister Rishi Sunak is considering offering 100% state guarantees on loans to smaller firms hit by the coronavirus pandemic amid criticism over delays to the government's lending scheme.

The U.K.'s Coronavirus Business Interruption Scheme, or CBILS, offers 80% state-guarantees on loans of up to £5 million for firms with a turnover below £45 million. But as banks have to cover 20% of the risk, the pace of loan approval under the scheme has been slow compared with that in other countries such as the U.S., where loans are 100% state-guaranteed.

Stephen Jones, the CEO of UK Finance which represents banks, told parliament on April 15 that the lending scheme could be simplified for loans below £25,000 where "there is a huge volume and probably the biggest backlog," and urged critics of the scheme to be patient.

Now Sunak, who previously said he was "not persuaded" that offering full guarantees was the right thing to do, is looking at creating a new scheme aimed at micro businesses that would offer full state guarantees on loans up to £25,000, to run alongside CBILS, the Financial Times reported on April 24.

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Need for speed

Many smaller firms rely on overdrafts on their bank accounts for funding, and banks have faced sharp criticism from business groups for responding to CBILS too slowly. Among them, the Federation of Small Businesses has criticized the process of applying to banks under the loan scheme.

"We're still hearing from members that even getting to the application stage for a CBILS loan is a nightmare — and these are businesses that made inquiries when the scheme initially launched. For those approaching banks for the first time, getting an audience is even more difficult," said FSB chairman Mike Cherry.

The Confederation of British Industry also criticized the speed of the scheme's roll-out.

"While the pace is picking up, many firms are still missing out. More loans must get out the door faster for the businesses facing distress, especially smaller businesses. Finding simpler and quicker routes for smaller firms to access cash and extending repayment schedules to encourage more businesses to take them up are two ways that could make a difference," said Rain Newton-Smith, chief economist at the CBI.

Figures from UK Finance released on April 23 showed British banks had provided more than £2.8 billion in loans to smaller firms through the coronavirus lending scheme. Total lending under CBILS doubled in the week to April 23, increasing by £1.45 billion, while the total number of loans approved has increased by more than 120% over the week to more than 16,600, according to the data.

"We expect lending to continue to grow rapidly in the weeks ahead," UK Finance told S&P Global Market Intelligence on April 23.

The FSB, along with the Institute of Directors, has also called for full transparency over lending by individual banks. Over 40 lenders are part of CBILS, and the government has not put a limit on the lending available under the scheme. Prior to April 23's UK Finance figures, a single bank, state-owned Royal Bank of Scotland Group PLC, had been responsible for half of all the loans issued, approving 5,600 loans amounting to £937 million. HSBC had approved 2,026 loans.

Barclays PLC said on April 23 that it had approved 2,971 CBILS loans with a value of £586 million.

"It would appear that certain banks are doing most of the heavy lifting on the CBILS front. We urgently need full transparency around loan conversion rates, loan size and timeframe by bank — including data on refusals," said Cherry.

Country comparisons

U.K. banks initially required personal guarantees for CBILS loans under £250,000, though this has now changed and, unlike other leading economies, the U.K.'s scheme is only 80% guaranteed by the state, not 100% guaranteed as in the U.S., Germany and Switzerland.

In the U.S., coronavirus loans from the Small Business Administration under the Paycheck Protection Program are 100% state-backed, without collateral requirements, personal guarantees or fees.

The scheme was so successful that the SBA ran out of funding in less than two weeks, exhausting its initial $349 billion after processing 1.6 million loan applications. None of the 5,000 lenders accounted for more than 5% of the total dollar amount of the program, and 74% of the loans were for under $150,000. The U.S. authorities have subsequently approved a further $310 billion for the SBA's emergency loan program.

Germany initially offered 80% state-backed loans to coronavirus-hit businesses, but has since offered 100% state-guarantees for the loans. It received 15,000 applications for around €27 billion under its initial 80% and 90% guaranteed loans, according to KFW, the state development bank which is coordinating the scheme. German authorities have not disclosed how many applications have been accepted, but said 90% of applications for amounts under €3 million had been approved.

The Swiss finance department said estimated loans guaranteed so far amount to CHF16.4 billion. The country offers 100% state-backed loans and has 123 participating lenders.

French media reports have said €40 million in loans have been granted under France's coronavirus scheme.

In the U.K., in addition to CBILS, there are also schemes for companies with a turnover of over £45 million which can apply for up to £25 million of finance while those with a turnover of more than £250 million are eligible for up to £50 million in funding.