The impact of covid-19 loan schemes

Covid-19 loan schemes raise issues for future of SME bank customer disputes – independent study warns

The big uptake of Government-backed covid-19 loan schemes raises important questions about small businesses’ concerns over their treatment as customers of the banks, according to an independent report published today.

The issues arise from the statistically significant participation of Small and Medium Sized Businesses (SMEs) in Government-backed loan schemes. A tightening economy will also create pressure on routine loans, as many SMEs’ revenues dry up as a result of the knock-on effects of the pandemic, says the study.

The report, The impact of covid-19 loan schemes on business banking dispute resolution, has been produced by the independent Business Banking Resolution Service and includes a poll of 500 UK small business decision-makers. The report focuses on businesses’ experiences with the Government’s financial aid schemes and the potential economic consequences and challenges arising from them.

To read and download the full report please click here.

Key findings from the report include:

  • Almost a third (29%) of customers state that they have experienced behaviour from their bank this year that would give them cause to lodge a complaint; encouragingly, 75% expect their bank to handle a complaint transparently and fairly, but a significant minority (20%) do not
  • 66% would be willing to challenge their bank in the courts if needed
  • 56% of respondents said they had accessed Government-guaranteed loan schemes, and 43% of those businesses said they do not expect to repay them, either because they do not think they will be able to, or because they do not believe that the Government will pursue the debt – despite this being a matter for the banks
  • 37% of SME decision makers said they would consider swapping the debt for the Government taking equity in their business
  • One third of respondents (33%) are aware of the BBRS and 82% agree that lenders accredited by the Government loan schemes should participate in the BBRS

Commenting on the report, the BBRS’ independent Chair, Lewis Shand Smith, said:

“Government-backed loan schemes have provided a lifeline. But it is critical for customers to understand that, just like any other loan, they will be required to repay 100% of the money they borrow under these new schemes. There needs to be clarity about that now to avoid the risk of storing up problems for the future. The banks have been working hard to support many of their SME customers in this context. The BBRS will not have access to a ‘magic wand’ to wish away unpaid loans.

“But, even with that message out there, we equally need to be clear that the covid-19 loans and inevitable economic pressures ahead have the potential to give rise to a significant volume of complaints. The regulatory framework for the Government’s pandemic-related loan schemes is yet to be determined, but the BBRS is ideally placed to consider complaints – where they are within our scope – that cannot be resolved by participating banks themselves.”

Earlier this month, the BBRS published the interim findings from the pilot study of how a new, more empathetic system of settling disagreements between SMEs and banking service providers could work. The so-called ‘Live Pilot’, set up at the end of last year, is looking at over 40 cases, and confirms the need for a deep rethink of the way complaints are handled.

The pilot has been informing this wholly new approach to handling business customers’ complaints against their banks. This approach is to be led by the independent BBRS, set up by seven participating banks working with a group of key stakeholders as equal partners. It will go live later this year.

Lewis Shand Smith added:

“It has never been more important for British businesses to get fair treatment from their banks. Doing so will, in turn, safeguard the reputation of the sector. The BBRS will play a vital role in making sure this happens.

“Today, we are looking ahead to what the landscape might look like after the crisis. It is clear that all of those involved in business banking disputes need to be ready for an increase in the volume of cases each requiring patient and careful attention. Once fully launched, we hope other lenders will be inspired to join the BBRS too, enabling us to extend the offer of this crucial service to more SMEs and banks across the UK.”