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The UK's new pandemic loan scheme means banks must pivot from relief to recovery

  • The UK government's new loan scheme aims to support struggling businesses as lockdowns begin to ease and the economy regains strength.
  • Here's how it differentiates from previous programs and what banks should do in response.
  • Insider Intelligence publishes hundreds of research reports, charts, and forecasts on the Banking industry. Learn more about becoming a client.

The UK government is planning to launch a new loan scheme for businesses impacted by the coronavirus pandemic as restrictions start to lift and the economic outlook brightens, Reuters reports.

Degree of impact of select factors on banking industry according uk banking executives
The UK government plans to launch a new loan scheme for businesses impacted by the pandemic.
Insider Intelligence

The Recovery Loan Scheme will replace the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) starting April 1, offering loans between £25,000 ($32,059) and £10 million ($12.8 million)—with each loan carrying an 80% state guarantee. Specifics on interest rates or eligibility criteria are not yet available, but they will reportedly be more strict than those of the government's current relief schemes.

The UK's pandemic relief schemes provided billions of pounds in loans to large and small businesses, keeping them afloat during the worst of the pandemic. At the pandemic's onset, the government fast-tracked the CBILS and BBLS to ease barriers to access for borrowers and spur participation from UK lenders: The CBILS allowed accredited lenders to provide up to £5 million ($6.4 million) across various forms to businesses, while the BBLS was more targeted—enabling a lender to offer a six-year term loan from £2,000 ($2,565) up to 25% of business turnover, with a maximum loan amount of £50,000 ($64,118).

For both programs, the government pledged to cover the first 12 months of fees and interest payments for businesses, with each loan carrying a 100% government-backed guarantee. Since their inception, CBILS and BBLS have enjoyed widespread engagement, receiving a total of 2.2 million applications and distributing £67.6 billion ($86.68 billion) in relief to struggling businesses.

Insider Intelligence believes that stricter eligibility requirements could signal the government is easing off the "relief" pedal and nudging businesses to look toward recovery—and banks should tailor their services accordingly. With the worst of the pandemic seemingly over and businesses turning their focus to what comes next, banking offerings that provide insight into how to best resume normal operations could engender long-lasting goodwill.

In many cases, banks deepening their business solutions will be crucial to retaining new customers brought in by the accommodative loan schemes. For example, UK-based neobank Starling nearly quadrupled its business accounts from 2019 to today thanks to the relief schemes and is now focusing on fortifying its small and medium-sized business (SMB) solution with more services.

To keep customers engaged, financial institutions could follow the lead of Barclays, which last summer rolled out its Back to Business toolkit that provides SMBs with a working capital calculator, cash flow forecasts, and other operational tools.

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