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Coronavirus loans of up to £50k for small firms will be 100% guaranteed by Gov – and arrive within hours
SMALL firms will be able to get interest free loans worth up to £50,000 under a new emergency micro-loans scheme announced by the Chancellor today.
Rishi Sunak said the new “bounce-back” loans will be 100 per cent guaranteed by the Government.
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Firms will be able to get loans worth up to 25 per cent of their turnover under the new scheme, up to a maximum of £50,000.
And cash will arrive within 24 hours of applications, Mr Sunak told MPs as he announced his latest initiative to help firms hit by the coronavirus lockdown in the Commons yesterday.
The scheme will go live next Monday at 9am.
The Government will cover the interest on the loans for the first 12 months, with firms able to pay back the remaining balance over the next five years at “very low” interest rates.
The scheme is targeted at Britain’s smallest firms and sole traders who face going bust due to the unprecedented impact of the coronavirus lockdown.
Mr Sunak laid bare the scale of the challenge facing Britain’s army of 5 million small businesses by telling MPs that the Treasury has seen evidence that a quarter of businesses have stopped trading.
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The Chancellor said: "These are already tough times and there will be more to come.”
The new micro-loans scheme comes after mounting criticism that too few loans were being approved under the current Coronavirus Business Interruption Loan Scheme (CBIL) because these are only 80 per cent backed by the Government, meaning banks have to make up the extra 20 per cent.
Just 20,000 loans have been approved under the CBIL scheme so far - worth £3.4 billion, despite it opening for applications at the start of the month. Banks have been slammed for being too slow to approve the loans, with some lenders reluctant to guarantee the remaining 20 per cent of the loan.
Mr Sunak also had to change the rules to ban banks from requesting personal guarantees on the loans.
He has applied the same rule on the micro-loans scheme.
The Government will pay the interest on the micro-loans for the first 12 months, with no capital repayment required within the first 12 months and no penalty for early repayments.
Mr Sunak acknowledged that some small firms were struggling to access credit, and by guaranteeing the full value of the loan he hopes that lenders will allow companies to borrow the funds they need.
But he rejected calls for the Government to underwrite other coronavirus loan schemes with a 100 per cent guarantee, insisting his new plan would "carefully target" the level of state support at those who need it most.
He told MPs: "I know that some small businesses are still struggling to access credit.
"They are in many ways the most exposed businesses to the impact of the coronavirus and often find it harder to access credit in the first place.
"If we want to benefit from their dynamism and entrepreneurial spirit as we recover our economy, they will need extra support to get through this crisis."
The new "microloan scheme" would provide a "simple, quick, easy" solution, he said.
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Mr Sunak added: "Businesses will be able to apply for these new bounce back loans for 25% of their turnover up to a maximum of £50,000 with the Government paying the interest for the first 12 months."
The loans will be available from 9am next Monday, with "no forward-looking test of business viability, no complex eligibility criteria, just a simple, quick standard form for businesses to fill in".
Federation of Small Businesses national chairman Mike Cherry said: "This crucial new initiative should enable thousands of small businesses to access the working capital they need quickly, helping to protect the millions of jobs they provide in every part of the UK."
Mr Sunak also revealed that four million people have now been officially furloughed by 500,000 companies and organisations, costing the Treasury £4.5 billion.
And he hinted that the Treasury could allow firms to start furloughing staff part-time to enable them to get back up and running gradually as the Government begins to lift restrictions.
The Chancellor told MPs that the Government was open to “gradual refinements” on “how we remove some of the economic interventions that we’ve put in place”.
The Treasury said they ruled nothing out but pointed out that it is much harder to administer a system whereby staff are furloughed only part of the week, while working the rest.
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He also revealed today that four million people have been furloughed, with a quarter of businesses ceasing trading.
But he stressed again that the Government would not be able to save "every business or every job".
Mr Sunak said that the Government won't back 100 per cent for all coronavirus schemes, saying it wasn't right to put that burden on tax payers.
He said that for loans of under £50,000, it means the help will get to those firms who need it the most.
Chancellor Rishi Sunak says first payments from coronavirus job scheme have been made with 4m staff in UK currently furloughed
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Meanwhile, more than 1.5 million new claims have been made to Universal Credit, Mr Sunak said.
But he stressed again that the Government would not be able to save "every business or every job".
Mr Sunak said that the Government won't back 100 per cent for all coronavirus schemes, saying it wasn't right to put that burden on taxpayers.
He said that for loans of under £50,000, it means the help will get to those firms who need it the most.
Commons Treasury Committee chairman Mel Stride welcomed the new scheme but said it would only be effective if banks play ball.
He said: “The Treasury Committee continues to receive evidence that some the Government’s schemes to help businesses get through this difficult time are too complex and too slow.
“I have called for Government to consider 100 per cent guarantees for smaller sized loans, so the introduction of Bounce Back Loans is extremely welcome.
“However, the success of the new scheme will still depend on the actions of lenders. It is essential, therefore, that there is full and regular transparency on the progress of this scheme in order to get this further vital lending out the door fast.”
Duncan Simpson from the TaxPayers' Alliance said the new scheme would help save taxpayers money by cutting out red tape.
He said: "With UK loans lagging behind Swiss and German schemes, the chancellor is right to heed our advice to streamline the support and open up emergency cash to the small firms who need it.
“Having accepted that the extraordinary measures to tackle the coronavirus crisis, Brits want to see taxpayer-funded support delivered quickly and efficiently, without reams of red tape standing in the way.
"With the process streamlined, ministers can protect taxpayers with more stringent legal measures under the Fraud Act, to fine and prosecute those who try to cheat the system.”
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