Small businesses have rushed to apply for a new government-backed loan scheme, prompting a lender to warn that banks may struggle to keep up with demand.
The Bounce Back Loan Scheme (BBLS) was launched at 8:30 a.m. on Monday and had received 79,500 applications in the afternoon, already exceeding 52,807 applications for the existing Coronavirus Business Interruption Loan (CBILS) program, which began on March 23.
According to the latest figures available, Lloyds had received 17,000 BBLS applications by midday, Royal Bank of Scotland 22,000 by 2.30pm and HSBC 34,500 by 4pm. Barclays was the only lender to confirm the number of approvals it had given for 100% government guaranteed loans, totaling 6,000 and worth £200million, as of mid-afternoon.
The accelerated scheme offers loans worth up to £50,000 to smaller UK businesses, which can apply via a simple online form. All banks offer loans at an interest rate of 2.5% which takes effect after the first 12 month period, without interest or payment.
Anne Boden, chief executive of digital lender Starling Bank, who applied to be a BBLS lender, told Treasury select committee MPs there would be concerns about how quickly banks could ramp up lending to cope on demand. The CBILS has been criticized for the slowness in processing applications.
Under the scheme, lenders must manually send data to the British Business Bank – the state-backed institution that runs the scheme – to process government-backed loans. Boden said this method was “unsustainable”. The British Business Bank is currently working on a new digital platform to speed up the process, but it won’t be ready for six to seven weeks.
“My biggest concern right now is that the processes within all the banks won’t withstand the pressure of what’s happening to process all these loans and bounce back as quickly,” Boden said. “I think there’s going to be a scale issue here.”
Starling only started loaning CBILS on Monday, despite asking weeks ago to be included.
Accredited BBLS lenders told the committee there was a deluge of claims on Monday morning.
“We’ve seen applications at a rate of around 35 per minute,” said Matt Hammerstein, director of British bank Barclays. “So I think there will be extraordinary demand, given the severity and scale of the the impact of this [Covid-19] crisis in small businesses.
RBS commercial banking chief Paul Thwaite said staff had been working hard to get the system up and running on Monday morning and the number of call center staff had been doubled to more than 500 to meet demand.
But MPs questioned whether banking systems would be able to cope with the surge in demand, including those linked to the British Business Bank.
Barclays customers would struggle to access apps on the bank’s website. Hammerstein denied the site was failing to cope and said the bank’s tech team was increasing the number of applications the site could handle live at any one time.
UK lenders have been accused of not distributing funds quickly enough through existing government schemes. Latest figures showed they had approved less than 50% of the 52,807 CBILS applications. David Oldfield, Head of Commercial Banking at Lloyds Banking Group, told MPs his team was also struggling to manage loan processing systems linked to the British Business Bank. These systems were originally designed for another government program known as the Enterprise Finance Guarantee, which was not designed to cope with such an increase in demand.
The chairman of the committee, Tory MP Mel Stride, warned he would draw attention to banks that were “slowing the pace”.