UK approval rate for coronavirus small business loans less than half that of Germany, new analysis finds

Embargoed 00:01 Monday 27 April 

New analysis from the TaxPayers’ Alliance has revealed that the coronavirus business interruption loan scheme (CBILS) is falling behind similar schemes in other European countries, in part due to overly complex requirements. The scheme should be streamlined, with fines and prison time for those that cheat the system.

As of 22 April, the UK's CBILS has delivered 16,624 loans to businesses with a total value of £2.8 billion, with 46 per cent of applications approved. The total value of approved loans is substantially less than that of both Germany and Switzerland, providing between 20 and 40 per cent of their cash value, with the approval rate less than half of that of Germany.

While no official figures have been provided for the length of applications, estimates suggest a four to six week approval process in the UK, requiring a variety of supporting documents such as management accounts, cash flow forecasts, business plans, historic accounts and details of assets. In Switzerland, the process involves filling out a 10-minute, one-page government form. Banks pay out cash almost immediately, and often within 30 minutes.

Having accepted that the extraordinary measures to tackle the coronavirus crisis are understandable and justifiable, taxpayers want to see support delivered quickly and efficiently. If firms are unable to access these funds, there is a significant risk many will collapse, with 59 per cent estimated by the British Chambers of Commerce to have less than three months’ cash in reserve.

Instead of excessive due diligence during the loan application process, there should be greater emphasis on fines or custodial sentences after the loan has been disbursed to discourage abuse. The 2006 Fraud Act could be amended to specifically incorporate fraud in relation to CBILS. Fraud by false representation currently carries a maximum sentence of 10 years’ imprisonment. 

Click here to read the briefing note


Key findings 

  • A comparison of the UK, Switzerland and Germany shows both that less money has been paid in loans to British businesses and that the requirements to access government-backed loans are far more onerous in the UK.
  • The financial situation for UK businesses is grave: 59 per cent are estimated to have less than three months’ cash in reserve, according to the British Chambers of Commerce. This has been exacerbated by the slow approval of loans by the 40 accredited UK lenders.
  • A clear estimate of the time period for approval has not been provided by the government, but one finance broker suggests a four to six week approval process. 
  • Only 46 per cent of applications have been approved in the UK, versus a 98 per cent approval rate for the equivalent German scheme
  • Increasing the guarantee from the government to 100 per cent has been much discussed as a means to speed up access to finance. It may well help, but without changes to the lending criteria, companies may not survive. 
  • Other OECD countries can serve as a model for quick approval of loans and limiting potential taxpayer liability. In Switzerland, loans are often paid within 30 minutes.
  • The 2006 Fraud Act could be amended to specifically incorporate fraud in relation to CBILS, such as the falsification of documents required to access financing. Fraud by false representation currently carries a maximum sentence of 10 years’ imprisonment.

Click here to read the briefing note
 

Duncan Simpson, research director at the TaxPayers' Alliance said: 

"Offering 80 or even 100 per cent taxpayer-backed guarantees misses the point if there are other reasons companies can’t access CBILS cash in the first place, which have led to the UK system lagging behind other European schemes.  

“The scale and speed of support provided to companies in both Germany and Switzerland shows that red tape seems to be delaying the loans, and potentially putting the economy at risk by setting the bar too high.

"The scheme needs to be streamlined and rather than trying to use the application process to protect against false claims, the government should fall back on more stringent legal measures to fine and prosecute those who try to cheat taxpayers.”   


 

TPA spokesmen are available for live and pre-recorded broadcast interviews via 07795 084 113 (no texts)

Media contact:

Sam Packer
Media Campaign Manager, TaxPayers' Alliance
sam.packer@taxpayersalliance.com
24-hour media hotline: 07795 084 113 (no texts)

  1. Founded in 2004 by Matthew Elliott and Andrew Allum, the TaxPayers’ Alliance (TPA) fights to reform taxes, reduce spending and protect taxpayers. Find out more about the TaxPayers' Alliance at www.taxpayersalliance.com.
     
  2. TaxPayers' Alliance's advisory council.
     
  3. Relevant sources regarding the statistics listed in the paper include: 
    UK Finance, £2.8 billion provided to SMEs through Coronavirus lending scheme, 22 April 2020; Jones, S., Swiss lead way with crisis loans to small businesses, Financial Times, 6 April 2020;  Wacket, M., & Nienaber, M., Germany’s KfW pays out 8.5 billion euros in coronavirus aid loans, Reuters, 21 April 2020.
     
  4. In March 2020 the TaxPayers' Alliance released an official statement on the coronavirus.
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