Loans Boost For Businesses

The Chancellor of the Exchequer, Rishi Sunak, told parliament that the scheme would commence next week, offering firms loans up to £50,000 within days of applying. It aims to unlock a backlog of credit checks by banks amid fears many small firms could fold before getting loans.

The loan terms state that no capital or interest repayments are due for one year, with the government picking up the tab for interest payments in the first 12 months.

Banks have come in for criticism over delays in processing and paying out loans, but have blamed this on the heavy workload involved with the need to complete the required credit checks as well as shortage of staff.

Sunak has been under pressure to underwrite all loans, not just those up to the value of £50,000 but he told the House of Commons he was not prepared to do this as he had to balance the risk to taxpayers with the requirements of small businesses.

The Chancellor said: "I've heard some calls for the government to underwrite all our loan schemes with 100% guarantees. I remain unconvinced by the case for doing that universally. We should not ask the ordinary taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses who may, in some cases, have very little prospect of paying those loans back and not necessarily because of the impact of the coronavirus."

Earlier this month, the Governor of the Bank of England said that sluggish emergency lending by banks "had to be sorted out" and that taking on all the risk from banks could "unblock" the schemes, particularly for small businesses.

Unlike the existing loan scheme, banks will not retain any of the risk for the new loans, which could stretch into tens of billions depending on how long the Coronavirus crisis lasts.

Business leaders have welcomed the new initiative. Dame Carolyn Fairbairn, CBI Director General, said: "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. Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster."

Mike Cherry OBE, Chairman of the Federation of Small Businesses, commented: "To date, the existing interruption loan scheme has not been working for the small firms that make-up 99% of our business community. The decision by the chancellor to listen to our recommendation for a 100% guarantee on smaller loans, alongside the creation of a new fast-track system for those applying for them, will give hope to thousands."