Almost 110,000 small businesses applied for a new emergency loan scheme in the first hours after it launched yesterday in a sign of the massive strain on the country’s wealth creators.
Business owners rushed to take out loans of up to £50,000 under the Treasury’s new taxpayer-backed Bounce Back Loan Scheme, amid a growing clamour for relief following weeks of lockdown. If all the firms seeking Bounce Back cash secured the full amount, it would come to nearly £5bn of lending in a single day.
Anne Boden, the chief executive of Starling, told MPs she was concerned that bank processes “won’t take the strain” and she thinks there could be a “scale problem here”.
Within a few hours, demand for the programme had eclipsed an existing coronavirus loans package which has been open for weeks and come under fire for failing to get money to where it is needed.
By 5pm, Lloyds said it had received over 26,500 applications for the loans while Natwest owner Royal Bank of Scotland had been sent around 30,000 and Santander 18,000.
HSBC said it had received 34,500, although 14,700 were from new customers who needed to complete fraud checks first. Barclays had recorded 6,000 applications by 2pm and did not update its figures.
The Bounce Back loans are targeted at the smallest businesses in Britain with a turnover of less than £200,000 a year. They are offered by banks at ultra-low interest rates and are 100pc guaranteed by the taxpayer.
Rishi Sunak, the Chancellor, launched the new loan programme in response to criticism over the Coronavirus Business Interruption Loans Scheme (CBILS), which was set up early in the Covid-19 crisis and is available to companies turning over up to £45m.
This has attracted just 52,807 applications despite being available since March, amid claims it is too bureaucratic and allegations that banks have been dragging their feet.
The CBILS offers only an 80pc taxpayer guarantee, takes longer and requires applicant information.
The new scheme does not require companies to prove they will be viable in coming months. It was feared this test was impossible for many businesses to pass given the huge uncertainty caused by the coronavirus.
Senior bankers told MPs they had been flooded with demand within hours of the programme's launch. Barclays recorded 200 applications in its first minute of opening and Lloyds received 5,000 applications by 10am with an average loan size of £35,000.
Barclays UK chief Matt Hammerstein said those 200 applications were approved within minutes and will be paid within 24 hours. The bank was continuing to receive an average of 35 applications a minute as of Monday morning.
However, the simplified application process has concerned bank bosses, who fear they could eventually be criticised for supporting shaky companies in defiance of City rules.
As a result sources said the final terms of the programme were not agreed until 9.30pm on Sunday. Bankers had hoped to avoid another last-minute agreement after the CBILS terms were sent to them at 3am the day it launched, but their fears around the new loans scheme remained as negotiations continued.
Speaking to MPs on the Treasury Select Committee, RBS commercial banking chief Paul Thwaite said: "Under terms of the guarantee agreed late last night, it's very clear that lenders have to adopt their normal processes to [debt] collection.
"Natwest and other organisations will be responsible and have to treat customers in their normal recoveries approach moving forward."
The CBILS scheme, where the taxpayer is liable for 80pc of the risk and banks the remaining 20pc, has been heavily criticised for being too slow. Ministers hope Bounce Back loans will reach companies far more quickly.
The banking industry has been attacked for delays in getting state-backed loans out, either by not responding quickly enough or pushing business owners towards more expensive options. Bankers have argued that similar schemes in Europe have got money out faster because they are fully state-backed.
Denying claims that banks were turning away firms in particularly hard hit sectors, Mr Thwaite told MPs that over half the applications to RBS for CBILS loans were from leisure, retail and hospitality.
The taxpayer-backed bank has increased its workforce by 50pc to deal with the flood of demand for the new micro-loans, he added. The loans allow companies to borrow up to £50,000, compared to CBILS which stretches up to £5m.
Mel Stride, chairman of the Treasury committee, told banks they were "right at the centre of the story on how well the economy copes" through this crisis and he would be closely monitoring how quickly loans are issued.