The UK Chancellor of the Exchequer, Rishi Sunak (pictured), has announced full state guarantees on lending to Britain’s smallest businesses.
The Chancellor, who previously opposed 100% government backing for emergency credit for small firms, said the government would fully stand behind commercial loans of up to £50,000 (US$62,000) to businesses.
Banks handling the loans will not be required to run credit checks or assess the long-term viability of applicants. Firms will have no interest or repayments for the next 12 months.
“Some small businesses are still struggling to access credit,” Sunak told parliament. “If we want to benefit from their dynamism and entrepreneurial spirit as we recover our economy, they will need extra support.”
Many businesses have been shut to the public since 23 March under a government lockdown to slow the spread of Covid-19, the respiratory disease that the coronavirus can cause.
Government forecasters have said the economy could contract by 35% in the second quarter of 2020, and UK Prime Minister Boris Johnson said, 27 April, it was still too risky to relax the lockdown.
In March, the Chancellor announced an emergency £330bn (US$411bn) Coronavirus Business Interruption Loan Scheme (CBILS) including loans of up to £5m (US$6.2m) for small and medium-sized companies, with state guarantees of 80%. However, that programme has got off to a slow start, with many companies saying they were struggling to get banks to approve their loans.
The Chancellor has noted that banks have now provided £3.4bn (US$4.2bn) across 20,000 loans via the government’s CBILS. The Bank of England had separately issued more than £14bn (US$17.4bn) to bigger firms.
Bank of England Governor Andrew Bailey suggested this month that 100% state guarantees for the smallest loans might break a backlog in loans applications.
The new scheme, which the government calls Bounce Back Loans, will open to businesses from 4 May and aims to pay funds to firms within 24 hours of a successful application.
Business organisations broadly welcomed the new scheme, but said time was of the essence for many small businesses struggling with cash flow.
“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,” British Chambers of Commerce Director General Adam Marshall said.
The Chancellor has sought to counter criticism about CBILS by highlighting the strong take-up for another emergency government scheme which pays 80% of the pay of workers temporarily laid off by companies.
He said half a million firms had made claims under the job retention scheme which covered nearly 4m jobs with a value of £4.5bn (US$5.6bn).
FILE PHOTO: Britain’s Chancellor of the Exchequer Rishi Sunak attends a news conference on the ongoing situation with the coronavirus disease (Covid-19) in London, Britain 20 March, 2020. Julian Simmonds/Pool via REUTERS/File Photo