Starling Disappoints with Bounce Back Loans Fiasco

Has Starling bank dropped the ball with government-backed small business loans?

Starling

The COVID-19 pandemic continues to impact our lives and dominate headlines. Although lockdown measures have eased slightly, businesses of all sizes continue to struggle. We’re likely to see a further easing in restrictions in June, but many companies are fighting for survival. Despite the government and lenders offering the Bounce Back Loan Scheme (BBLS), banks such as Starling have come under criticism for their failure to meet demand and approve loans. We take a look at the full details.  

Bounce Back Basics

BBLS was introduced to help small and medium-sized enterprises during the pandemic. These SMEs can, in theory, borrow between £2,000 and £50,000 depending on the size of their company. With a low-interest rate of 2.5% and the loan 100% guaranteed by the government, it seems like an appealing prospect.

It was quite a big coup for Starling to make the list as one of the lenders on the scheme. The challenger bank joins Lloyds, RBS, HSBC and Barclays, among others. But as the scheme went live early in May, banks reported a huge surge in requests.

Nearly 80,000 applications had been placed across the banks by the afternoon of the first day the scheme was live. This is on top of the nearly 53,000 applications for the coronavirus business interruption loan scheme (CBILS). Starling launched their BBLS offering a week after the major banks.

Starling Criticism

However, this significant wave of applications continues to grow, and Starling has faced criticism from customers about the process. So far, the bank has rejected around 16% of applications, leaving some small businesses with no support.

There have also been complaints about the scheme in general, particularly from challenger banks. Some have decried the limits placed on how much certain lenders can offer customers. Tide, for example, told around 30,000 customers that it was nearing the limit for how much they could lend.

These smaller banks also face a problem when it comes to the volume of new customers. Their position in the market means they want to get as many new customers to sign up as possible. However, this may mean that new customers go to the back of the queue as the double demand for accounts and BBLS applications continues.

Starling Response

Anne Boden, CEO and founder of Starling Bank, has responded the storm of criticism seen across social media. Her statement claimed that businesses would be unable to apply for the scheme with another bank while applications were being processed. So, Starling, ‘felt we should decline as quickly as possible all applications that we were unlikely to accept.’

Another area of criticism has come with Starling making credit checks on applicants, even despite the government advising otherwise. Boden’s response was that during their soft credit checks for new accounts, they ‘noticed that a high proportion [of sole traders] fell into a high credit risk category.’

Boden’s statement has not landed well with some customers. Many have responded on Twitter to express their dissatisfaction with the bank’s handling of the process.