Barclays received 200 Bounce Back Loan applications in the first minute the scheme went live this morning, as Lloyds Banking Group also received 2,000 in two hours.
The numbers of small businesses rushing to apply for the new Bounce Back Loan scheme – which carries a 100-percent government guarantee – were revealed this morning in an MPs’ Q&A session with UK leaders at various banks.
Facing questions from the Treasury Select Committee, executives at RBS, Lloyds Banking Group, HSBC, Starling Bank and Barclays explained the challenges so far in processing and approving business interruption loans, the changes being made in digital to lend faster at higher volume, and how the collections process will work with government-backed lending.
Referring to the Bounce Back Loan initiative specifically, Matt Hammerstein, chief executive of Barclays Bank UK, told the committee the bank had received 200 applications within the first minute of the scheme going live at 8am this morning (May 4), adding: "These were all fully approved, and we expect the cash to be with those businesses over the course of the next 24 hours."
Barclays was later seeing around 35 applications every minute today, showing what Hammerstein described as "extraordinary demand reflecting the severity and the breadth of the impact of this pandemic on small businesses."
Hammerstein said Barclays UK had been working round-the-clock during the past seven days on operational improvements, to make applications easier and faster via online banking and through its apps.
He added that applications with more complex mandates, where multiple signings are required, will be automated by Wednesday or Thursday this week.
Other bank bosses told MPs this morning they expect huge demand for Bounce Back Loans due to the scheme’s competitive rate. The new initiative comprises six-year loans of between £2,000 and £50,000, offered at 2.5 percent after a year of no repayments.
The scheme is aimed at smaller companies – micro businesses and sole traders, but there’s no limit on the size of business that can apply. Firms must have been trading on March 1 this year, and not been in severe financial difficulty by the end of December last year, to be eligible.
While there will be no credit checks on applications, lenders will still carry out AML and fraud checks for Bounce Back Loans.
The banks were also asked about how the government guarantee would be collected on loans if the businesses become unable to make repayments, but David Oldfield, group director and chief executive of commercial banking at Lloyds Banking Group, said: "For any loan, calling the loan in and taking in the security is an absolute last resort. I won’t define when that happens as a number of months (past due), as it can be different for each bank. But as with all of our lending, we support businesses with forbearance and offer as many options as possible, before calling in any security. It is not something we do lightly."
Paul Thwaite, chief executive of commercial banking at RBS, said: "Under the terms (of government-backed loans), we adopt normal process to collection, and these are covered by the Lending Standards Board. There have been legislative and regulatory changes for the criteria of checking these loans, but there has been no carve out for collections, businesses will be subject to the normal recoveries approach."
Business interruption loans
As well as Bounce Back Loans, the bank executives discussed problems with the structure of the existing Coronavirus Business Interruption Loan (CBIL) scheme.
Questioned on why approvals were inititally slow, and why businesses weren’t receiving the emergency funding fast enough, the bank bosses explained it was in part related to the scheme’s structure.
Anne Boden, chief executive at Starling Bank, told the committee: "The British Business Bank and the Treasury have based this on an existing scheme – the Enterprise Finance Guarantee (EFG) and this wasn’t meant to process such high volume."
She explained to MPs that the EFG requires application details to be keyed in manually, adding: "If we have to do so many lends so quickly, that doesn’t work."
David Oldfield at Lloyds said the EFG was "a cumbersome product" not held on its strategic lending platforms, which posed problems.
Admitting that Lloyds had had a "slow start" to granting approvals to CBILs, Oldfield claimed the lender was now accelerating the process. In parallel with RBS, Lloyds has seen more demand from existing customers, for capital repayment holidays and support with overdrafts.