Coronavirus: Government tells banks to 'repay the favour' and hand out loans to struggling businesses
The business secretary has issued a warning to banks that it would "completely unacceptable" to fail to hand out loans to businesses hit by the coronavirus crisis.
Alok Sharma said banks needed to "repay the favour" from the 2008 financial crisis when the government stepped in to provide a taxpayer-funded bailout for financial institutions.
He admitted that the £330bn government-backed loan scheme for struggling businesses had not been "perfect from the outset" but the chancellor Rishi Sunak would announce further measures in the coming days.
It comes amid concerns that smaller businesses were struggling to secure loans, despite the government's promise to underwrite 80 per cent of the risk to ensure banks were on board.
Speaking at the daily Downing Street press conference, Mr Sharma said: "The chancellor, together with the Bank of England, and the Financial Conduct Authority wrote the chief executives of the UK banks to urge them to make sure that the benefits of the loan scheme are passed through to businesses and consumers.
"And it would be completely unacceptable if any banks were unfairly refusing funds to good businesses in financial difficulty.
"Just as the taxpayer stepped in to help the banks back in 2008, we will work with the banks to do everything they can to repay that favour and support the businesses and people are the United Kingdom in their time of need."
Mr Sharma said £12 billion in grants for small businesses was now with local authorities and urged them to pay it out "as quickly as possible".
It comes as new research found nearly a million small firms could run out of cash within the next four weeks as they struggle to access the emergency coronavirus loans support.
A report by The Corporate Finance Network of accountants predicts that 18 per cent of Britain's small businesses will not be able to survive the next month despite the taxpayer-backed loan scheme.
Mike Cherry, national chairman of the Federation of Small Businesses (FSB), said businesses were being pushed towards expensive loans with personal guarantees or banks are failing to respond.
He said: “We can’t have a situation where banks are approached by successful small firms and lenders offer up business as usual products. This is not business as usual.
"Millions of fantastic small firms are facing collapse. They were promised interest free, fee free, government-backed support from banks.
"Many of them are in urgent need of it today, and it’s not being made available. We look forward to the Chancellor’s intervention.”
A Treasury spokesperson told a Westminster briefing that hundreds of companies have now received loans under the government’s business interruption scheme, adding: “Cash has very much gone out of the door.”
The Treasury is understood to be in daily contact with the banks and being very clear about its expectations that the support offered by the government should feed through to firms needing it.
Mr Sunak is understood to recognise that banks have to make commercial decisions on loans but he has made clear that he expects them to be offered at rates which are as attractive and effective as possible.
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