The government has this morning announced reform to the business loan schemes that have, to date, been so hopelessly inadequate. They have noted that:
- £90 million of business interruption loans approved for nearly 1,000 firms and £1.9 billion corporate finance provided to firms hit by COVID-19
I think (and trust that you will excuse the language) that this is technically called 'pissing in the wind'.
So they've now said:
- current loan scheme extended so more small businesses can benefit
- lenders banned from requesting personal guarantees on loans under £250,000
- new scheme announced to bolster support for larger firms not currently eligible for loans
- Chancellor emphasises importance of banks moving quickly to support the economy, jobs and businesses
Let me pull out the usual list of problems.
First, banks still have no incentive to lend if a business is bust under this revised scheme, and hundreds of thousands are. This scheme will not keep the UK SME sector alive in that case. If the government wants to do that it has to offer 100% loans.
Second, if there are no guarantees for banks they're going to stop lending. Why would they do otherwise? So far they've passed the buck back to the government. Now the government has thrown it back to them. I guarantee they won't catch it. Loans will still be as rare as hens' teeth.
And, third, banks are simply not geared up to do this. The pretence that banks are in the business of lending to small business is one of those charades of respectability that they like to assume but which has little truth to it: 85% of their lending is for property deals; most of the rest is personal finance and a tiny proportion is business loans. They don't have the skills to deliver.
Sunak has been taken in by the hype but the reality is that British banking is not fit for purpose. He's rearranging deckchairs again. Given it another week and he'll need another go at this.
Only 100% loan guarantees will achieve his aim. I said so on 11 March - his budget day. Now he needs to deliver. But it may well be too late by then.
This man is incompetent: procrastination is the surest sign of that and he delivers it by the bucket load. And so far he's delivering almost nothing else.
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Howard Davies who has the comfy chair at RBS said today that the banks were bailed out in 2008 for the public benefit. My wife, who generally takes no interest in things financial, pointed out the very obvious half truth there.
And, yes, you are right that banks don’t lend much to small business, they much prefer selling products or charging fees.
A useful reminder of what seems little understood about the major U.K. banks. Firstly that a tiny proportion of their lending is to business, the kind of lending that supports wealth creating investment in innovation, people, technology, et al. Overwhelmingly it’s in property, plus financial speculation and trading. The idea that they somehow recirculate our savings to our collective benefit died years ago.
A second and even less understood point is that they no longer have the capacity to carry out that lending. I worked a lot with them during in the 90s and noughties, especially with Barclays. They eliminated all their experienced branch managers, industry specialists, and district and regional offices, to save cost/ maximise profit and in the misguided belief that it could all be done better with computerised ‘expert systems’. We might joke about the Captain Mannerings but they tended to know what was going on in their area and could and would go and see the businesses they lent to. Kicking the tyres and eyeballing their customers. And no, of course they were not all perfect.
Today’s bank branches are staffed by people who can do little more than help you fill in a form or assist the older customer who struggles with technology. The idea that they are positioned to help and fund small business is naive and ignorant.
As it happens, there is an exception: Handelsbank of Sweden that has branches here has a business model that is very similar to the old U.K. bank model. A farmer friend who’d had enough of Barclays and observed all the changes we described, moved to them a while back and so far, so good. Perhaps there are others – they deserve support and to succeed.
Agreed Robin
Including re Handelsbank of whom I hear good things
I have used Handelsbanken for the last 8 years. Their customer service is fantastic and they are in the top 20 strongest banks in the world. Banking like it should be.
This is becoming farcical and worthy of a Gilbert & Sullivan production if it wasn’t for the fact that people’s lives and livelihoods are at stake. No matter how expensive an education these politicians have, ideology overrides all ability to understand the basic building blocks of society. Unfortunately they have been elected to lead but possess the wrong kind if ‘intelligence’ to do so. Maybe enough people will now wake up to the fact that our entire system of government – from electoral process to executive administration is ‘unfit for purpose’.
I don’t like being perennially negative and prefer to focus on solutions, but unless the root cause of a problem is correctly diagnosed & understood, there is no chance of a functioning solution. Hence it’s someway analogous to medicine: for sustainable good health it’s necessary to identify and then treat the cause and not just the symptom. By definition, conservative governments are always going to be reactive. To expect otherwise is unrealistic, very frustrating and bad for one’s well-being.
On reflection I rather like the holistic health analogy – lol. Monopoly capitalism is typified by Big Pharma whose core interest is keeping the patient unwell, while spending billions convincing governments and society they are essential agents for good health. It’s ‘Alice Through the Looking Glass-land’. Ivan Illich (remember him?) described it as iatrogenic. One could similarly describe Neo-liberalism. While the health professionals are on the ground trying to save lives, politicians are thrashing around out of their depth, giving day-to-day credence to the Dunning-Kruger Effect.
And don’t let John Crace’s entertaining & mildly flattering piece about Matt Hancock in today’s Graun deceive anyone into thinking there’s been some Pauline revelation within the government.
Just saying. Rant over. Back to purdah 🙂
Crace is good
But he has no faith in Hancock: that is apparent
Nor have I
Re: the expensive education . How right you are . I am related by a close family marriage to a number of old Etonians, which as the son of a factory worker, brought up in a council house
in the fifties and sixties has been an extraordinary , and entirely unpredicted experience. From acquaintance with them at family gatherings the thing that stands out most in my mind is their complete inability to connect with anyone not of their own background and education . It’s not their fault . That’s what an Eton education is intended to produce – a separate being, separated from family and the rest of society. In the early sixties when the Beatles and Bob Dylan emerged and the Old Etonian Alec Douglas Home was succeeded by Harold Wilson even at the age of fourteen I remember thinking well that’s the end of the Old Etonians . How wrong I was . And the recent crop of Old Etonians, Cameron, Osborne, Rees-Mogg come from the spivocracy class which is a more decadent version of the old aristocracy. So you are spot-on John these people do not understand ‘ the basic building blocks of a society ‘. Hence their inability to comprehend the concept of living ‘ hand to mouth ‘ . So now in this moment of national emergency, the like of which none of use has experienced in our lifetimes , not being able to respond with something immediate is unsurprising. I commented on here the other day that I had emailed my Tory MP Bim Afolami ( also an old Etonian ) to suggest putting a cheque for £2000 in the envelope with every one of the 30 million letters the government is supposed to be sending to every household in the country . He agreed with me and said he would speak to the government . I told the old Etonian family member , also a Tory MP , who said he would speak to Bim. Is it likely to happen ? No. Not just because of the cost , which doesn’t even come close to the bailouts proposed for big business , but because they cannot imagine anyone not having £10 in the pocket to buy basic necessities.
This from the Progressive Pulse blog a couple of days ago
“These are key quotes from the British Business Bank, the bank designed to keep business running till the Coronavirus crisis passes:
Coronavirus Business Interruption Loan Scheme gives the lender a government-backed guarantee for the loan repayments to encourage more lending.
The borrower remains fully liable for the debt.
The Big Four banks have agreed that they will not take personal guarantees as security for lending below £250,000.
So businesses are fully liable for the loan and would certainly lose their business and the rest of any assets (even if main homes would, it seems, be spared) if they defaulted.
The banks, ‘the lender’, not the business, note, are guaranteed repayment of 80% of the loan and will doubtless first pursue the lender to ensure they get the missing 20%.
This is scandalous. I first thought that the business itself was going to get the comfort of the 80% guarantee — not a bit of it. Businesses will be liable for the lot. And we and they have been stitched up by politicians (Sunak is ex Goldman Sachs) and their banking friends. The government has found the Magic Money Tree for the banks again.
Closed businesses will not be bouncing back when all this is over.
But the banks doubtless will.”
As a small business owner staring insolvency in the face this makes me sick
To paraphrase Christine Lagarde, the trouble with banks is that they’ve got used to helping themselves rather than being a service that helps. So yes – they are incapable of helping to deliver relief.
Nevermind being an ‘industry’; banking should have been first and foremost a service facilitating business – not bloody business itself.
The government is paying the fees and interest for a year on these new loans, so if I was a bank and then charged the interest at say 25% pa and a set-up fee of 5% then assuming all the lenders defaulted I would get back 80% under the guarantee plus 30% under the interest and charges so end up with a 10% profit while the government ended up with the bill for 110% of the loan. Plus the businesses are all in liquidation. That does not really seem very clever from anyone’s point of view except the bank. Maybe Rishi Washi would be better to accept that it is just a grant in which case the banks are not required, the businesses stay in business and it only cost the Treasury 100% instead of 110%.
Well thought through Tim
Is 25% interest being offered?
A 5% fee is high….
BofE Base Rate is now 0.1%. I understand that the banks have been sending out information on arranged overdrafts that from 30th March, 2020 the rate of borrowing will to go up to circa 40%. I am not sure if all the banks are the same. The margin, I personally think could not unfairly be described as usury. But ever since the Wonga days (remember them? They seem best to define the low point we reached, the gutter nature of Britain in the 21st century); it seems that almost anything modestly short of 2,000% APR (just don’t push it, chaps somebody might notice), is fair dealing .
40% massively over compensates risk in this case
So far as I can see the Treasueu has agreed to pay whatever interest rate the bank sets ans whatever fees they charge. Bank cheque or what?
A good analysis. In 2008/9 the banks were bailed out. This time they seem to be being presented with gift wrapped opportunity to line their pockets. But then Riki Washy (I like that) is a died in the wool banker. That’s the only world he knows.
This needs wider publicity- I’ve not heard this analysis elsewhere
I really cannot see where the ‘risk’ is for the banks in the scenario.
Can anyone tell me?
I mean its not as if they are going to be lending out of their current account holders deposits.
Sunak has turned into the drunken cowboy who can’t hit the side of the barn !
It’s an act. Meanwhile council tax bills, water rates, internet bills, BBC poll tax … keeps being collected. People have leases on work vans and extortionate vehicle insurances especially for business use, and vehicle excise. All supposedly made better by lower fuel prices! Which doesn’t achieve a proportionate benefit as there is no need for petrol to go do jobs which are cancelled.
Overdrafts that may have usually been cleared by receipts and credit cards before interest accrued, will not be as businesses and individuals won’t be able to pay their bills to their suppliers and contractors and the self employed.