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SMEs face double the permitted interest rate under the Business Interruption Loan Scheme

Paloma Kubiak
Written By:
Paloma Kubiak

Some small and medium sized businesses face paying more than double the maximum interest rate for loans extended under the Coronavirus Business Interruption Loan Scheme.

The Coronavirus Business Interruption Loan Scheme (CBILS) allows SMEs to access loans and other finance of up to £5m.

Under the scheme, UK-based businesses with an annual turnover of up to £45m can apply if they can prove they’ve been adversely impacted by coronavirus.

The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months. After this period, businesses are then charged interest on the loan.

While the British Business Bank – the UK government’s economic development bank which operates CBILS – agreed a maximum rate of 14.99% for CBILS as of early June 2020, it has been revealed that the highest individual interest rate for a loan under the scheme is 34.9%, granted before the cap was implemented.

Responding to a parliamentary question on the total value of loans extended under the CBILS where the annual rate of interest exceeds 14.99%, and the highest rate of interest at which CBILS has been made, Lord Callanan, parliamentary under-secretary (Department for Business, Energy and Industrial Strategy), gave the following answer:

“Interest rates are set by lenders under the scheme. The British Business Bank and BEIS do not approve individual commercial terms. Some delivery partners accredited before the 14.99% maximum rate of interest was in place can issue CBILS facilities with interest rates above 14.99%.

“Facilities worth a total of £19.64bn have been offered under CBILS. The total value of loans offered under CBILS where the annual rate of interest exceeds 14.99% is £35,364,874. The highest individual interest rate for a loan offered under the scheme is 34.9%.”

The average CBILS loan is £237,000. Based on this figure only, it is suggested that around 150 loans are charged higher than 14.99% – around 0.2% of all the loans.

According to the British Business Bank, the average rate is 5.1% and to date, there are 114 lenders accredited to the scheme.

‘Sky-high interest rates would be inexcusable’

Federation of Small Businesses (FSB) national vice chair, Martin McTague, said: “Emergency loan schemes were established to help small firms in need through an incredibly difficult period. As such, banks should be approaching facilities in a spirit of support and cooperation. Sky-high interest rates would be inexcusable.

“Ultimately it’s the government underwriting these loans, so if it looks as though lenders are taking advantage, it should intervene. What we risk at this point is a cliff-edge moment around April where support measures start to tail off just as debt repayments start to bite. The one-year grace period for emergency loans should be extended immediately.”

A UK Finance spokesperson, which represents the banking and finance industry, said: “Under the terms of the CBIL scheme set by the government the pricing of loans will vary amongst lenders, however the vast majority of lending through the scheme is at a rate of less than 14.99%, with many loans set at a far lower rate. No interest is payable for the first twelve months and lenders have agreed not to charge any fees for setting up the loan or for early repayment, but will of course bear administrative and funding costs.”

The scheme launched in March 2020 and is open until 31 March 2021.