According to lobby group UK Finance, £1.1bn in lifeline loans have been paid out under the emergency loans scheme. But only 2pc of queries have been successful, with just 6,000 loans agreed out of 300,000 expressions of interest.
Tej Parikh, chief economist of the Institute of Directors, said the money is not reaching struggling companies fast enough to keep the economy going while ordinary business is banned.
Although the number of small business owners receiving the emergency cash is more than double what it was a week ago, major concerns remain. An estimated 300,000 initial queries led to just 28,460 formal loan applications, according to bank lobby group UK Finance.
If a customer defaults on the loan, the state will cover 80pc of the lender’s loss. There are calls for this guarantee to be hiked to 100pc so that banks have more incentive to lend, amid fears the industry is deliberately dragging its feet. Banks claim they are working as fast as possible, but are being held back by bureaucracy.
Norman Lamont, chancellor under John Major, said reducing the exposure of lenders “could be part of the solution” and that the risk of fraud could be “a price that has to be paid”.
He said: “The banks are being asked to carry quite a bit of risk and therefore they do a full credit analysis and that means sometimes they don’t want to take the risk.
“I don’t want to advocate doing things that are unaffordable but I do think there is a problem getting the money to people quickly enough.”
Labour and business groups have called for the Chancellor to fully underwrite loans to businesses to speed up the process. However, that would leave the taxpayer picking all the losses if swathes of businesses collapse.
Sajid Javid, current Chancellor Rishi Sunak’s predecessor at the Treasury, backed calls for a 100pc guarantee for smaller firms.
He said: “Nothing should be left off the table and if i was in the Treasury I would certainly be looking at 100pc guarantees to see if it was possible.”