Small businesses can receive £50,000 ‘bounce-back loans’ under new government scheme

Rishi Sunak

Chancellor Rishi Sunak has announced an offer of 100 per cent guarantees on “bounceback loans” of up to £50,000 for the smallest businesses affected by the coronavirus outbreak.

But Mr Sunak resisted pressure to increase the current 80 per cent guarantee on loans under the Coronavirus Business Interruption Loan Scheme (CBILS) to cover their full value.

Businesses and banks have blamed the limit on the guarantee for the relatively slow provision of the emergency credit, which has so far seen just 16,000 CBILs loans issued, compared with more than 250,000 in the equivalent scheme in France, and more than 100,000 in Switzerland.

Tory backbenchers, Bank of England governor Andrew Bailey and former chancellor George Osborne have been among those calling for a change of course and it was muted that Sunak was going to agree to £25,000 loans for small business 100% backed by the government so his announcement of double the sum available has come as a surprise to many.

Mr Sunak told the House of Commons that the new micro-loan scheme is designed to help small businesses struggling to access credit during the current lockdown.

Companies will be able to apply for bounceback loans, free of interest for the first 12 months, up to the value of 25 per cent of their turnover, with a cap of £50,000.

Available from 9am next Monday, the loans will not be subject to business liability tests or complex eligibility criteria, he said.

Describing them as “ a simple, quick, easy solution for those in need of smaller loans”, Mr Sunak said that most eligible firms will be able to access them by filling out a standard form, with funds available within 24 hours of approval.

Sunak rejected a broader extension of emergency credit guarantees or grants as an unacceptable burden on taxpayers to support businesses which might be unviable even without the blow to trade from coronavirus.

“I’ve heard some calls for government to underwrite all our loan schemes with 100 per cent guarantees,” said the chancellor. “I remain unconvinced by the case and 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.

“So I do not think it is appropriate to provide 100 per cent guarantees on all of our schemes.

“Instead, these new bounceback loans carefully target that extraordinary level of state support at those who need it most. And the £50,000 balances the risk to the taxpayer with the need to support our smallest businesses.”

Labour’s shadow chancellor Anneliese Dodds said Mr Sunak’s announcement would be a “relief” for businesses, but said the UK had “an enormous mountain to climb” to match other countries’ support for smaller firms.

“It’s a relief to hear from the chancellor that he’s listened to calls from this side of the House, business, and others that we need a full guarantee for at least some loans – he stated those of up to £50,000,” said Ms Dodds.

“But we need to be clear the UK has an enormous mountain to climb in this area. Switzerland has a population of under 9 million, yet it approved four times as many loans within its first week than the UK has done in a month.

“We’re running out of time, so can I ask the chancellor how he will ensure that banks back loans and get (them) to those businesses that need it. How will they get out of the door and what plans does he have to ensure the capacity will be there in banks to provide those loans?”

Commenting on the announcement Dame Carolyn Fairbairn, CBI Director-General, said: “The Chancellor’s new 100% guaranteed loan scheme for small businesses is transformational. 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.

“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. It will be vital to maintain this approach in the months to come. Every job saved today will ensure a faster recovery tomorrow.”

Stephen Jones, Chief Executive of UK Finance, added his thoughts on the announcement: “Finance providers are committed to helping small and medium sized businesses through these tough times and the new Bounce Back Loans scheme (BBLS) announced by the Chancellor today will make it simpler and faster for smaller businesses to apply through an online form and get the loans they need.

“The terms of this new scheme and the changes being made by the authorities to existing lending rules to support its launch will enable lenders approved by the British Business Bank to process these loan applications based on a short, simple online application form and for lenders to assess the applications at pace without the need for forward looking financial plans.

“The BBLS will sit alongside a broad package of support that lenders are providing SMEs including through the government’s CBIL scheme, the CLBIL scheme, as well as capital repayment holidays, extended overdrafts and asset-based finance.

“Lenders approved by the British Business Bank are now working non-stop to get the new scheme up and running from Monday. Further details will be provided for those businesses who wish to apply for a bounce back loan from the end of this week.”