Small businesses will be able to borrow between £2,000 and £50,000 and access the cash within days.

Small businesses will benefit from a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders, Chancellor Rishi Sunak announced today.

The new Bounce Back Loans scheme, which will provide loans of up to £50,000, would help bolster the existing package of support available to the smallest businesses affected by the coronavirus pandemic. “Sole traders, micro-firms and entrepreneurs will now have a simple route to fast finance to stay afloat, without red tape or time-consuming checks,” Dame Carolyn Fairbairn, Director-General of the Confederation of British Industry (CBI), said. “It’s good to see the Chancellor listening to business, proving that where there’s a need to adjust schemes, he will do what it takes.”

The new scheme has been designed to ensure that small firms who need vital cash injections to keep operating can get finance in a matter of days. It comes alongside the £6 billion awarded in business grants, supporting 4 million jobs through the job retention scheme and generous tax deferrals supporting hundreds of thousands of firms. As we wrote earlier, the government’s rescue package to businesses worth £330bn may amount to 15% of gross domestic product (GDP).

The new Bounce Back Loans will be easy to apply for through a short, standardised online application. Businesses will be able to apply for loans equal to 25% of their turnover, up to a maximum of £50,000. The loan should reach businesses within days, providing immediate support to those that need it as easily as possible. The government will provide lenders with a 100% guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months.

The scheme will launch for applications from 9am on Monday 4 May. There will be no forward-looking tests of business viability; no complex eligibility criteria; just a simple, quick, standard form for businesses to fill in. For most firms, loans should arrive within 24 hours of approval.

Firms will be able to access these loans through a network of accredited lenders. The government will work with lenders to ensure loans delivered through this scheme are advanced as quickly as possible and agree a low standardised level of interest for the remaining period of the loan.

The government’s Covid-19 support schemes have provided over £15 billion for business in just a few weeks. The following measures have already been put in place:

• the job retention scheme – more than 500,000 claims have been made to the value of £4.5 billion
• business grants – half a million business properties have benefited from £6 billion of business grants of up to £10,000 or £25,000
• the Coronavirus Business Interruption Loan Scheme – with over 20,000 loans approved
• the Covid Corporate Financing Facility, which has provided over £14 billion for larger firms
• generous VAT deferrals worth billions of pounds – over 2 million businesses have been offered a VAT deferral, saving an average of £30k
• businesses rates scrapped – almost half of all business properties in England will pay no business rates this year
• another 2.7 million people will be able to defer their self-assessment payments
• almost 60,000 people and businesses have put time to pay arrangements in place with HMRC
• the existing safety net strengthened, with increases to Universal Credit, the Local Housing Allowance, and Statutory Sick Pay
• the cost of statutory sick pay covered – up to 2 million employers will be able to access the Statutory Sick Pay rebate, up to £48,000 per firm
• £750 million has been allocated to the charity sector
• the new scheme will run alongside the existing Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS)

Prior to the launch of the new scheme, the Chancellor said that he was not persuaded that a total, 100% state guarantee for loans to businesses during the pandemic was the right thing to do, despite pleas from Tory MPs, Bank of England governor Andrew Bailey, and former Tory chancellor George Osborne to change course. Moving to 100% guarantees might increase the risk of fraud, although those working on the plan believe micro-companies will only access loans as “a last resort” once all other forms of government support, including grants, have been exhausted.

Germany, Switzerland and France are leaders in supporting small businesses through quick state-guaranteed emergency loan schemes. “The Chancellor has demonstrated he is listening to the concerns of our business communities and taking steps to get cash to the front line where it is needed,” Adam Marshall, Director General of the British Chambers of Commerce (BCC), said after a similar scheme was announced in the UK. “This new route for our smallest companies to apply quickly and get a fast decision will be crucial to those who have struggled to get a CBILS loan.”

Additional steps were also taken on the Coronavirus Business Interruption Loan Scheme (CBILS) to ensure that lenders have more confidence in processing finance applications quickly. Firstly, the per lender portfolio cap for the government guarantee was removed. A previous rule meant the government would only guarantee 60% of a lender’s portfolio of loans issued under the scheme. Secondly, the government changed the viability tests so that all banks will need to assess now is whether a business was viable pre COVID-19. UK Finance, the banking trade body, said these were welcome changes which should enable lenders to provide finance to companies more quickly.

In his statement to the Parliament, Rishi Sunak said that the main goal of the government’s economic strategy was to maintain the productive capacity of the British economy. Therefore, all the measures taken by the government should aim at supporting viable businesses to stay afloat, keeping as many people as possible in their existing jobs, and protecting the incomes of the most vulnerable.

Survey evidence suggests a quarter of businesses have paused trading. More than 1.5 million new claims have been made to Universal Credit, and over 4 million jobs have now been furloughed.

The most important and far-reaching policy is the Coronavirus Jobs Retention Scheme, to keep people in employment. The scheme was launched on 20 April, and the first grants have just been paid. Around half a million firms have already applied for help to pay the wages of over 4 million furloughed jobs, “jobs that might otherwise have been lost”, Rishi Sunak emphasised.

HMRC are also on track to deliver the Self-employed Income Support Scheme, as promised, in early June, and detailed guidance will be published this week.

Image: psphotography / Adobe Stock

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