For a huge number of small businesses government-backed Bounce Back loans (BBLs) have been a lifeline. However the BBLs scheme has exposed a huge fault line which has left 250,000 businesses eligible for, but cut off from, funds.
All four main banks in the UK (HSBC, Nat West, Lloyds and Barclays) have pulled down the shutters on new business accounts for companies that already have bank accounts elsewhere. They are citing ‘operational difficulties’ but this is cold comfort for those business owners and their staff. A quarter of a million businesses are tied to business banks that have no funds to lend on BBLs and cannot move.
The so called “challenger banks” which the government and regulators were relying on to bridge the gap are helpless to act due to lack of access to fund Bounce Back Loans. This has left a quarter of a million businesses in an exquisitely-designed limbo where the banks who can help won’t, and the banks that want to can’t.
Things are set to get worse
The Chancellor’s November announcement that businesses that already have BBLs loans, but didn’t take up the full amount available (25% of turnover or £50,000 whichever is smaller), can take out a further BBLs to use up their fully allowed limit has thrown the main banks into operational panic. It is understood that a combination of increased demand and absences due to lockdown will overwhelm them again.
HSBC, Nat West, Lloyds and Barclays all had issues in delivering consistently timely loans to their customers during the initial BBLs application wave during the nationwide Covid lockdown earlier this year. Some banks, like HSBC, appeared to have been overwhelmed. In response to this all four banks have closed their doors to new customers who want to access BBLs.
Despite the marketing spin, the message from all four banks is the same: if you don’t already have a business account with us we won’t open one for you.
There are some very limited exceptions. The banks will consider some applications from new start-ups, which are not eligible for BBLs, and Barclays Bank will consider an application for a BBLs loan for sole traders who operated their business through their personal account with Barclays during the eligible period.
The potential loss of 250,000 businesses due to the inability of the big four banks to meet the ‘know your client’ requirements will cause hardship and unemployment, but their reported inability to process top up loans to businesses locked down for a second time may cause a problem of much greater magnitude with very large numbers of SMEs left with insufficient working capital could cascade defaults and bad debts that will derail any quick recovery post-Covid.
The Treasury are aware of the problem as are the BoE and have been working to resolve the issue for some time, without success.
The new demand for top-ups has the potential make a catastrophe out of a crisis.