UK banks: Are banks profiting from coronavirus crisis?

Banks have been offering loans with personal guarantees and charging extortionate interest rates on the Government-backed business interruption loans, causing widespread concern that some of the emergency measures to provide financial assistance to businesses are not working. The person guarantee requirement loads most of the risk that the loan goes bad on the business owner, instead of on the banks.

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It means that the banks can go after the personal property of the business owner if their business goes under and they cannot afford to pay off the debt.

Their main home would be protected but the bank could go after other assets.

Those can include things like personal savings, shares or holiday homes.

Some loans are charging 30 percent interest, and Barclays have told customers they will be required to sign personal guarantees to access the government-supported emergency finance.

Canary Wharf

Banks have been accused of profiteering off of the crisis (Image: GETTY)

Barclays

Barclays have asked prospective recipients to guarantee the loan personally (Image: GETTY)

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HSBC has similarly asked for a form of personal guarantee for loans over £100,000.

The Government has now acknowledged this and it was announced this morning that banks have now been banned from asking for personal guarantees against loans to businesses.

However, it is currently unclear what will happen to those who have already been lent money on those terms.

The Treasury has also outlined there will be new processes put in place to speed up the process of getting an emergency loan.

Rishi Sunak

The chancellor has brought in sweeping financial measures to help the economy (Image: GETTY)

So far, only 983 firms have received support.

The coronavirus business interruption loans are a key part of the Government’s package to protect businesses throughout the coronavirus crisis.

This virus outbreak has seen all non-essential shops and businesses closed down for the foreseeable future.

The scheme is delivered through commercial lenders, backed by the Government-owned British Business Bank

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Research from a network of accountants in the UK has suggested that up to a fifth of UK businesses will not survive the next four weeks unless viable help becomes available to them.

Banks have said they are following the rules set by the Government.

The current rules mean firms can only get emergency loans if they can’t borrow in a normal commercial way, like borrowing against the value of a property.

The chancellor promised “any good business in financial difficulty who needs access to cash to pay their rent, the salaries of their employees, pay suppliers, or purchase stock, will be able to access a government-backed loan, on attractive terms”.

Natwest

Banks have said they are following the rules set by the Government (Image: GETTY)

However, firms have been reporting they have either been declined for the scheme, or cannot pursue it because the interest rate would bankrupt them anyway.

Mayor of London Sadiq Khan told BBC Radio 5 live that “banks have got to step up” to help small and medium-sized businesses survive.

The Chancellor Rishi Sunak said: “We are making great progress on getting much-needed support out to businesses to help manage cashflow during this difficult time.”

“We have also listened to the concerns of some larger businesses affected by COVID-19 and are announcing new support so they can benefit too.

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“This is a national effort and we’ll continue to work with the financial services sector to ensure that the £330 billion of government support, through loans and guarantees, reaches as many businesses in need as possible.”

A Treasury spokesman told The Sun: “Banks are ready and able to offer support to their customers who are impacted directly or indirectly by COVID-19.

“We encourage anyone concerned about their overdraft to contact their provider.

“Financial Conduct Authority rules require firms to make appropriate interventions if they identify that a customer is in financial difficulty.”