On the brink: SMEs cut off from bounce back loans as banks close to new customers

Small businesses are being shut out of potentially life-saving bounce back loans (BBLs) because lenders are turning down new customers, despite the funds being fully guaranteed by the government.

City A.M. has spoken to a number of businesses who have had applications to set up new business accounts with lenders rejected, often without explanation.

Many of the major lenders require firms to have business accounts with them in order to access the state-guaranteed cash. 

One businesswoman who spoke to Morning Wire said the situation had left her homeless after her income was wiped out by the Covid-19 pandemic.

SME owners said they had nowhere left to go as lenders shut the door on new BBL applications, with just five of the 28 accredited lenders currently accepting applications from new customers, despite Chancellor Rishi Sunak extending the deadline for applications to 30 November.

Last week HSBC shut applications for new customers, saying it needs to process loan decisions already in hand, meaning businesses are fast running out of options for securing loans.

BBLs are 100 per cent government-backed loans introduced to help keep small businesses afloat through the economic disruption caused by the Covid-19 pandemic.

As of 20 September, loans totalling just over £38bn had been approved for 1.3m small businesses under the scheme, according to Treasury figures. Businesses can apply for up to £50,000 in loans under the scheme and have 10 years to repay.  

The scheme was designed to get cash to struggling businesses as fast as possible, but many eligible businesses have had their applications declined with no justification given.

Most lenders require applicants to open accounts with them before they will consider a BBL application, although banks such as HSBC allow non-customers to apply for temporary feeder accounts into which loans are paid.

‘All the banks just said no’

Morning Wire has spoken to a number of business owners who have been unable to open  business or feeder accounts with accredited lenders, despite being eligible for the scheme.

Ellie* first tried to get a BBL soon after the scheme opened in May. The project manager, who has run her own company for over eight years, attempted to secure a loan from four accredited lenders.

After being rejected for a loan by Starling, “all the other banks that I tried to open an account with just said no,” she told Morning Wire. Ellie was also placed on Tide’s waiting list and rejected for a business account by Metro Bank and for a feeder account by HSBC. 

Ellie, who is pregnant with her first child, could no longer afford to pay rent at her London flat after the pandemic wiped out most of her income. 

She and her partner, who was made redundant, are now living in cheaper temporary accommodation outside London, but Ellie has been unable to access any prenatal care as she doesn’t have a permanent address. 

“The situation went downhill really quickly. I went from living in London, having this amazing life, to being on the phone to the council saying ‘I’m pregnant, I’m homeless, can you help me,” she told Morning Wire

Ellie and her partner have sold their car and computers in order to pay for accommodation, leaving her unable to take on any new work.

“The only way I can get out of this situation is if I can get some money, and I can’t get money from anywhere,” she said.

Although Ellie was not initially given reasons why her applications to open accounts were turned down, she suspected it was due to her “not great” personal credit scores.  

After getting her MP involved, Metro Bank confirmed that Ellie’s credit history was the reason for her rejection for an account. 

Metro Bank has since offered her an appointment in branch later this month to reassess whether it could offer her an account. 

 “Under BBLs, lenders will not turn down applications for purely credit or affordability-related reasons,” a British Business Bank spokesperson told Morning Wire

“Automated systems – some of which can also undertake credit checks – will, however, be used for the purposes of validating information, as well as identifying and stopping potentially fraudulent applications for the scheme”, they said.

Andy Piggott, director of lending products at Metro Bank, said: “We have a great deal of sympathy for businesses that are currently experiencing challenges in the unprecedented environment we find ourselves in. 

“We have organised an appointment with this customer to discuss her application to open a new business account. We’re committed to supporting our SME customers who have been impacted by coronavirus, and are using the BBL scheme to support them in line with the scheme guidelines.”

Morning Wire has been contacted by a number of other businesses with similar experiences.

‘Genuine companies’ being denied BBL help

In the last week, the scheme has fallen under scrutiny amid concerns that lenders could fall foul to fraud and misuse. 

The National Crime Agency said it will probe organised crime linked to bounce back loans, The public spending watchdog is due to publish a report on whether the BBL scheme offers value for money tomorrow. 

However, experts have warned that a clampdown on potential fraudsters could risk viable businesses being denied loans.

“As we saw with the self-certified subprime loans scandal pre-2008, fraudsters including bank insiders see [BBLs] as an easy target,” said David Clarke, chairman of the Fraud Advisory Panel charity.

“Banks now appear to have tightened checks so much that genuine companies are being denied help which seems unfair,” he added. 

Phil, 39, who runs a consultancy and recruitment firm in Manchester, found that he had been rejected by every lender he applied to for a loan.

Eventually, after being rejected by Isle of Man-based Conister, Phil decided to investigate and found that a Cifas marker – indicating potential fraud – had been incorrectly added to his credit file in 2019.

“I panicked and I was trying for two days to get hold of someone. I spent 15 hours on the phone in total, trying to get it removed”, he told Morning Wire .

Although he managed to have the marker removed, when he asked Conister to review his application he was once again rejected by the bank.

In a letter from the bank, seen by Morning Wire, Conister said that he “did not meet [its] internal criteria for the BBL”. However, the bank would not provide a reason why he had been rejected a second time. 

The Financial Ombudsman is currently reviewing Phil’s case. 

A spokesperson for Conister said that the bank had been allocated £10m for funding the scheme, but had received applications totalling almost £163m.

The bank is processing 301 customers for a total amount of £11.7m in loans, it added.

“We have so far approved 60 per cent of these applications and are monitoring the situation very closely. We will adjust our focus where possible in order to service the needs of small businesses across the UK”, it said.

It declined to comment on individual cases.

Pat McFadden, shadow economic secretary to the Treasury, told Morning Wire that ministers should do more to ensure viable businesses could access the scheme. 

“The government can’t stand back and watch as small businesses are cut off from support. It must ensure the Bounce Back Loans scheme reaches those who need it most”, he said.

*some names have been changed.

Morning Wire would like to hear from small business owners who have struggled to access BBLs. Please get in touch with [email protected] or [email protected] if you have been affected.