Lloyds boss: Coronavirus business loan scheme was ‘painful’ and ‘flawed’ when launched
The launch of the government’s coronavirus business loan scheme was “painful” and “flawed”, according to one of the top bosses of Lloyds Bank.
David Oldfield, group director and chief executive of commercial banking at Lloyds, said today that the government’s emergency loan scheme was “cumbersome and onerous” when it launched.
He added that he still thought the decisions made around the formation of the scheme were correct as it was imperative to get it up and running quickly.
The Coronavirus Business Loan Scheme (CBILS) has been criticised for being slow, particularly in its first three weeks, with many of the country’s 6m small and medium sized businesses struggling to access it.
City PM reported exclusively last month that just 2,000 loans worth £291.9m had been approved in the scheme’s first two weeks.
The process for the loan scheme, which sees the government underwrite 80 per cent of each loan, was based on the Enterprise Finance Guarantee (EFG).
The EFG is a government loan scheme for viable businesses who are struggling to secure commercial loans.
Oldfield told Westminster’s Treasury Select Committee that using this scheme as a basis for CBILS allowed it to launch quickly, but that it also brought many issues.
“Before the lockdown there was a real determination to find a scheme that was going to get money out to businesses that needed it quickly,” he said.
“The view was ‘let’s use EFG with the flaws we know it has’ – it hadn’t operated at scale, it is quite a cumbersome and onerous system.
“It was painful, we found it challenging at Lloyds in that early period of getting it going until we made improvements to process.
“Starting with EFG was fine and the right compromise at the time and those two changes [made to the scheme by Sunak] have been very helpful I think. We’ve all learnt lessons, it’s been unprecedented so we are all learning lessons every day, the bounce back loans reflected some of our learning.”
Another feature of CBILS has been that some sectors are not able to access it, according to Barclays Bank UK chief executive Matt Hammerstein.
Hammerstein said some sectors, such as real estate, were frozen out of the scheme for Barclays.
“Individual banks over the course of time will have made decisions about their own credit risk appetite for different sectors, therefore they may or may not be able to lend to specific sectors through CBILS,” he said.
“We have historically not lent to the real estate sector, for example, so therefore we won’t lend to real estate within CBILS.”
Banks have now approved 25,262 loans worth £4.1bn through CBILS almost six weeks after it was launched.
Chancellor Rishi Sunak made changes to it last month to ensure that all businesses could access it, regardless of size or if they were able to access commercial loans in other ways.
The government also launched its “bounce back loans” today, which provides up to £50,000 to small businesses within 24 hours of applying.
These loans can be approved in that timeframe, because the Treasury is taking all of the default risk and not just 80 per cent like for CBILS.
Demand has been overwhelming in its first day, with Barclays receiving 35 applications a minute, according to Hammerstein.