Chancellor prepares 100% guaranteed £25,000 for small business loans

Rishi Sunak

Chancellor Rishi Sunak is preparing to offer 100 per cent guarantees on loans to Britain’s smallest businesses, after sustained pressure from Conservative MPs and the Bank of England.

Mr Sunak’s colleagues say he is “weighing up” whether to go against his instincts and offer full state backing to loans of up to £25,000 to “micro-SMEs” struggling to get credit to see them through the coronavirus crisis.

He said this week he was “not persuaded” that a total state guarantee 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.

But senior bankers are working with the Treasury on a new scheme, which could be launched as early as next week, targeted at as many as 1m of the smallest companies, typically employing a handful of workers.

Shop owners, hauliers and pub owners represent a mainstay of Tory support and Conservative MPs have been furiously lobbying Mr Sunak to speed up bank lending to local companies by offering full Treasury guarantees.

“We have got to keep these small businesses alive,” said Mark Francois, a leading Eurosceptic Tory MP. “The banks should be stepping up to the plate but they are not. If that is the case, the government may have to go to 100 per cent.”

The Treasury declined to comment and government officials stressed that no final decision had been taken. People close to the talks said Mr Sunak wanted to ensure a new scheme could be delivered at speed and at scale.

He is looking at creating a new scheme for microbusinesses, running alongside the larger coronavirus business interruption loan scheme, which carries an 80 per cent state guarantee on loans of up to £5m for companies with a turnover of less than £45m.

A person close to the talks said the chancellor believed the overall CBILS system was starting to work: new data showed that more than 16,600 smaller companies had received almost £3bn of loans under the scheme, which had doubled since last week.

Lenders have received more than 36,000 applications, which means that almost half have been approved to date. Others are being processed and may be approved over the coming days, although the figure also includes those that have been rejected.

But the scheme faces questions from company bosses and MPs as many businesses say they have been turned away for not meeting the tough criteria to access the loans, which includes proof of future viability despite the economic uncertainty caused by coronavirus.

This is a race against time, and the only winning strategy is scale, speed and simplicity. Nothing should be left on the table

Others have been frustrated by long delays or mixed messages from their branches as they fast ran out of cash. Mr Francois said a local pub owner had been asked by the bank to provide cash flow forecasts. “He doesn’t know when he’s going to reopen,” he said.

While the smallest businesses do not all need help, and some have never previously borrowed large sums from the bank, it could still pose a burden on the taxpayer if they struggle to pay back the debt.

Moving to 100 per cent guarantees increases the risk of fraud, officials warned, although those working on the plan believe micro-companies would only access loans as “a last resort” once all other forms of government support, including grants, had been exhausted.

The CBI employers’ federation has backed the idea of a 100 per cent guarantee on loans to small businesses and has called for more than £15bn of extra financial aid for struggling companies. It also argued for the need for 100 per cent guarantee for loans of up to £500,000.

The CBI has called for all firms to be granted a three-month suspension on business rates and for grant schemes to help smaller firms unable to access existing support.

Carolyn Fairbairn, CBI director-general, said: “The current loan scheme is up, running and working for many. Now we need another big push to get money out the door faster. This is a race against time, and the only winning strategy is scale, speed and simplicity. Nothing should be left on the table.”