Small firms will go bust if banks fail to support them, says leading MP

Some banks are not following guidance to offer their SME (small and medium-sized enterprise) customers holidays from both the capital and interest elements of their loan repayments during the pandemic, according to an influential group of MPs.

The All-Party Parliamentary Group on Fair Business Banking has been concerned that guidance is not being followed with regard to interest deferral.

Kevin Hollinrake MP, the chairman of the All Party Parliamentary Group on Fair Business Banking (APPG), said some firms would simply go bust if the banks failed to act.

He added: “Those who can will be able to access Government-backed loans until November 4, those who can’t or don’t may have severe cash flow problems, which will inevitably lead to some business failures.”

Sign up to our Business newsletter

Sign up to our Business newsletter

According to the APPG, FCA guidance has been in place since March stating that banks should “proactively” offer full payment deferrals of both the repayment and interest elements of loan payments to business customers affected by coronavirus. For most business borrowers, the interest element of loan payment is usually much larger than the capital element, the APPG said.

The APPG said: “An inability to defer interest payments is a major issue for some small business who still cannot trade fully due to coronavirus. The APPG has been concerned for some time that the FCA guidance is not being followed with regard to interest deferral and requested information from the CEOs of 11 major banks.”

However, a spokesman for UK Finance, the banking sector’s trade body, said: “The FCA guidance only covers certain buy to let arrangements that are covered in line with mortgage contracts, it was not intended to apply to general business customers as implied here and banks takes a case by case and sympathetic view of needs for repayment deferral in line with the commitments in the standards of lending practice for business customers.

“In the case of commercial real estate investors, a statement was issued confirming this approach.”

However, Mr Hollinrake said he didn’t agree with UK Finance’s claim that the FCA guidance only covered certain buy-to-let arrangements.

He added: “While the guidance was primarily formulated to cover regulated residential and buy-to-let mortgages, it also applies if an authorised person carries on activity in relation to an unregulated agreement to provide credit which is secured on land.”

Mr Hollinrake said that Christopher Woolard, the FCA’s interim CEO, confirmed in an email that “the guidance builds from that to seek to deliver similar benefits for similar borrowers, in this case some small business secured loans that are not regulated mortgages but which are held with regulated firms.”.

Mr Hollinrake added: “It should also be noted that, in the APPG’s experience, the statement that banks take a ‘sympathetic view’ is often not borne out in reality.”

Figures published by HM Treasury revealed that more than 1.2 million businesses in the UK have been supported by finance from lenders through the Government-backed coronavirus lending schemes.

The Bounce Back Loan Scheme (BBLS) continues to support small and micro businesses across the country, with nearly 1.16 million now receiving finance through the scheme.

Lenders have also now approved £13.4 billion worth of financing via the Coronavirus Business Interruption Loan Scheme (CBILS) to 59,520 companies.

Editor’s note: first and foremost - and rarely have I written down these words with more sincerity - I hope this finds you well.

Almost certainly you are here because you value the quality and the integrity of the journalism produced by The Yorkshire Post’s journalists - almost all of which live alongside you in Yorkshire, spending the wages they earn with Yorkshire businesses - who last year took this title to the industry watchdog’s Most Trusted Newspaper in Britain accolade.

And that is why I must make an urgent request of you: as advertising revenue declines, your support becomes evermore crucial to the maintenance of the journalistic standards expected of The Yorkshire Post. If you can, safely, please buy a paper or take up a subscription. We want to continue to make you proud of Yorkshire’s National Newspaper but we are going to need your help.

Postal subscription copies can be ordered by calling 0330 4030066 or by emailing [email protected] Vouchers, to be exchanged at retail sales outlets - our newsagents need you, too - can be subscribed to by contacting subscriptions on 0330 1235950 or by visiting www.localsubsplus.co.uk where you should select The Yorkshire Post from the list of titles available.

If you want to help right now, download our tablet app from the App / Play Stores. Every contribution you make helps to provide this county with the best regional journalism in the country.

Sincerely. Thank you.

James Mitchinson

Editor