Rishi Sunak has launched a new “Business Bounce Back” loan scheme for more than 5 million of Britain’s smallest firms following massive pressure over fears they were being failed by Treasury rescue efforts.
The Chancellor’s new lending programme will be backed by a 100pc taxpayer guarantee and is intended to ensure that businesses floundering in the wake of the lockdown get the support they need.
Mr Sunak also removed a key hurdle in the main Coronavirus Business Interruption Loan Scheme (CBILS) after growing anger over the stuttering performance of the initiative, which is designed to get vital credit to businesses which form the backbone of the country’s economy.
He was previous reluctant to fully guarantee some Covid-19 support loans, but U-turned after a slew of interventions from senior figures including Bank of England Governor Andrew Bailey, who said additional support might help clear a worrying backlog of applications.
The Treasury’s new scheme means that huge numbers of the smallest and most vulnerable companies in the country can now get a bank loan of up to £50,000 with no interest payable in the first year. To persuade banks to lend the money, the taxpayer will cover 100pc of their losses when a borrower defaults.
It is intended to be up and running from next Monday with a simple online application procedure, and all firms trading as of March 1 will be able to get cash.
The loans will be funnelled through 48 lenders accredited by the state-owned British Business Bank and firms should receive thei money within 24 hours, the Chancellor said. All lending will be fee-free and interest-free for 12 months, and can be paid back without early repayment charges.
Mr Sunak has supported smaller businesses with grants, business rates holidays and VAT deferrals but has been previously reluctant to follow the example of rival nations like Germany, which launched a 100pc guaranteed loans scheme a month ago.
He set up the CBILS in March with an 80pc guarantee for small and medium companies and made a pot of up to £330bn available, but banks have since faced a storm of criticism for failing to get this cash out fast enough. Just £3.4bn and 20,000 loans have been handed out so far.
It is thought that shifting responsibility for all losses onto the public sector in the Bounce Back scheme will encourage lenders to get money to the smallest companies more quickly.
Unveiling the new scheme, Mr Sunak said that he had to “balance the risk to the taxpayer with the need to support our smallest businesses”.
Bounce Back loans will be available to any smaller company for up to 25pc of their turnover, capped at £50,000. The effective £200,000 limit means it would cover all of UK’s the 5.6 million micro-businesses with up to nine employees, which turned over £900bn in total or £160,000 each last year according to Government figures.
Dame Caroline Fairbairn, director-general of the Confederation of British Industry, said thousands of businesses could be saved by the lifeline.
She added: “Banks now need to continue their work in overdrive to get the loans flowing faster.”
The Treasury has already responded to criticism over the main CBILS, where loans of up to £5m are 80pc guaranteed, by banning demands for personal guarantees where banks have a claim over a director’s property on loans below £250,000.