RIGHT from the start of this national crisis it has been clear Covid-19’s impact on businesses would be monumental. It is therefore unsurprising that the government has been quick to enact one of the most comprehensive spending packages the country has ever seen.

Central to the government’s approach has been the announcement of the Coronavirus Business Interruption Loan Scheme (CBILS). Almost all businesses, with a turnover of less than £45 million per annum, will be eligible. Some restrictions are in place though; businesses must be UK-based for example. Equally, if a business could meet normal lending requirements or has recently received significant state aid, they may find themselves ineligible.

Like all critical businesses the banks need to adapt fast to revise their lending policy and upgrade their processes. It will be a major challenge. Having said that, most of the banks that dominate the SME sector have corporate and social responsibility embedded in their purpose, the current crisis represents a huge opportunity to demonstrate that purpose is authentic.

Although the Chancellor has provided an 80% guarantee on loans under the scheme, it will be down to the banks to administer how these are implemented – which is obviously not without complications. The British Business Bank has already stated that it will be left to individual lenders – of which there are more than 40 approved at this stage – to decide what, if any, additional security is required. Private residences as a personal guarantee is already off the table. Further to this though, Royal Bank of Scotland has announced that it will not be asking for personal director’s guarantees, perhaps mindful of the stake in them that the government holds, and this stance has quickly encouraged other lenders to follow suit.

Since the last financial crisis, the Prudential Regulation Authority has ensured banks are well capitalised, so access to capital shouldn’t be a problem. Bad debts erode that capital however and the banks need to ensure they do not impact their own viability. Even with the 80% guarantee, banks must assess the future feasibility of the business and have a strict duty of care to explain and caution directors around taking on debt.

It is likely that many of the businesses applying for CBILS will have existing borrowing and the banks need to assess the viability of the business and ability to repay and service all debt. Those customers that are already over leveraged will face additional scrutiny during the application and assessment, with banks, understandably, not wishing to increase their exposure and probability of loss by lending more.

Capacity to process applications will be another determining factor in how quickly funds reach companies. At least anecdotally, the banks are already under some considerable pressure in this respect.

A lack of scalable automation and a reliance on labour intensive, time consuming processes mean that there aren’t a lot of easy answers here. It is absolutely vital, therefore, that everything is done to control the elements of the process that can be expedited. Central to this is gathering the right information to ensure applications can be assessed and processed efficiently.

The first stage of the process is commonly undertaken face-to-face by a relationship manager and given current restrictions, telephone and video conferencing needs to replace this. Ideally, if this process is streamlined then relationship managers should be empowered to pre-screen borrowing requests, saving vital time. This can be done via pre-assed lending limits or clear guidelines being issued to customer facing teams by the credit underwriters.

The banking sector has an essential role to play over the coming weeks and months but, like nearly every other sector of the economy, it faces incredible challenges. Given the importance of the financial services sector to the economy, and the huge impact the banks have on the fate of thousands of businesses currently struggling to keep their heads above water, it is vital that they are able to overcome these challenges quickly.

Ewen Fleming is partner and head of financial services at Johnston Carmichael.