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.
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.”

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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.

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