Treasury extends UK emergency business loan schemes

Bank of England

The Treasury is extending its emergency business loan scheme and will allow firms to “top up” their borrowing as part of new rules meant to keep businesses afloat during England’s second lockdown.

UK firms will now have until the end of January to apply for emergency business loans, including bounce back loans (BBLS), coronavirus business interruption loans (CBILS) and the CLBILS scheme for larger firms. That is two months longer than the existing 30 November deadline. The extension also applies to the Future Fund, aimed at UK startups.

“To help more businesses access additional support, deadlines for applications to our government-backed loan scheme and the Future Fund have been further extended until 31 January 2021,” the chancellor, Rishi Sunak, said on Twitter.

Small businesses that already received funds through the 100% government-backed BBLS programme – which offers firms cheap loans worth up to £50,000 – will also be able to top up existing loans if they need additional cash.

The top-up is meant to help firms that borrowed less than the maximum sum available – up to 25% of their turnover to a limit of £50,000 – to avoid taking on extra debt. However, most firms made those calculations before the second lockdown in England was announced.

A government document outlining the changes said: “We understand that some businesses didn’t anticipate the disruption to their business from the pandemic would go on for this long; this will ensure that they are able to benefit from the loan scheme as intended.”

Firms will be able to request a top-up from next week but will only be able to do so once, according to the document. The bounce back loan scheme has so far distributed £40.2bn to 1.3m UK businesses.

The changes were announced only hours after the Treasury convened an emergency meeting with Britain’s largest banks – including HSBC, Barclays, NatWest and Lloyds – in order to review the terms of the government-backed loan programme.

“We need to convene an urgent meeting at noon to discuss the favoured bounce back loans,” the email read, according to a banking source. It was the first direct communication with banks regarding the loans programme since Saturday’s national lockdown announcement.

While the chancellor had committed to crafting a new government-backed loans programme for 2021, the reality of a second lockdown put more businesses under pressure without additional emergency funding.

Kevin Hollinrake, a Conservative MP and co-chair of the all-party parliamentary group (APPG) on fair business banking, welcomed the Treasury’s announcement but said firms would benefit form a longer extension into the middle of 2021.

He said the top-ups should also apply to the larger CBILS scheme, which allows firms to borrow up to £5m and comes with an 80% government guarantee.

Hollinrake said the Treasury had also failed to address the fact that non-bank lenders are blocked from accessing cheap funding from the Bank of England. It means they cannot afford to offer bounce back loans – which come with a flat 2.5% interest rate – to their customers. Meanwhile, most lenders that do have access to cheap Bank of England funds are not processing applications from non-customers.

“That’s still a work in progress and an issue that needs to be resolved as soon as possible,” Hollinrake said.

The APPG estimates that about 250,000 businesses are in effect blocked from emergency loans as a result.