Metro, Handelsbanken, Danske, HSBC and Santander are leading the way on providing payment holiday support for business customers, however, the approach of Lloyds and TSB in particular appeared to more bank-led and did not offer interest payment deferrals. Virgin Money, Barclays, NatWest, and Co-operative Bank do sometimes give full payment deferrals of both capital and interest, but the responses were less clear on how proactively they were offered or how often they were taken up.
FCA guidance has been in place since March stating that banks should proactively offer full payment deferrals of both the repayment and interest elements of loan payments to businesses customers adversely affected by coronavirus. For most business borrowers, the interest element of loan payment is usually much larger than the capital element. An inability to defer interest payments is a major issue for some small business who still cannot trade fully due to coronavirus. The All-Party Parliamentary Group on Fair Business Banking has been concerned for some time that the FCA guidance is not being followed with regard to interest deferral and requested information from the CEOs of 11 major banks.
The guidance requires that:
- Affected customers should be offered holidays from both the capital and interest elements of their loan repayments.
- Such deferrals should be proactively offered, ‘unless it can demonstrate it is obviously not in the firm’s best interest’ and ‘in considering what is in the customer’s best interest, a firm should not have regard for its own commercial interests’.
- Firms should also, ‘not report a worsening status on the customer’s credit file’.
It appears that, while some banks are sticking to the guidance, some are not. All banks were offering customers capital repayment breaks but not all were routinely allowing or proactively offering the deferral of interest payments. From the CEOs’ responses, all banks claim to be focused on supporting their business customers and tailoring assistance to their needs. All banks rightly stated that it was often in customers’ best interest to take lending through the Bounce Back Loan Scheme or Coronavirus Business Interruption Loan Scheme, but some appeared to be adhering to the FCA guidelines more than others in assisting businesses who needed additional help.
The APPG was pleased to note that most banks confirmed that customers’ credit files were not adversely affected by payment deferrals. We are, however, aware that banks who claimed to be offering full deferrals are, in some cases, not. Nicky Pender, a B&B owner from Newquay said “NatWest initially offered to defer my capital payments but not the interest which was crazy because my business could not trade at all because of coronavirus. It was only after I copied the APPG and my local MP on my letters and quoted the FCA guidance to them that they stopped taking interest payments out of my account as well.”
The APPG also has concern about the treatment of limited companies. The FCA guidance does not distinguish between sole traders or unincorporated partnerships and limited companies, simply referring to an ‘unregulated agreement to provide credit which is secured on land’. However, the FCA’s Interim Chief Executive, Christopher Woolard, has told us that the guidance was not intended to cover limited companies. The APPG feels strongly that that this is wrong because many small limited companies are run by one or two Directors, for whom the impact of coronavirus has been just as severe.
The uncertainty created by coronavirus means that businesses will continue to need additional forbearance and support from their lenders for an unknown period of time. Wide access to full repayment and interest payment deferrals may well become even more important as time goes on. Clarity and consistency is needed on this issue to ensure that individuals and companies are kept in business.