Rishi Sunak is considering extending the government’s support for the smallest businesses by offering 100 per cent guarantees on business loans to firms currently struggling to access the government cash.
According to FTAdviser’s sister paper, the Financial Times, the chancellor is preparing to offer full state backing on loans up to £25,000 to micro-SMEs to support them throughout the coronavirus crisis.
This was after Mr Sunak had come under pressure from Tory MPs and the Bank of England to increase the financial support for micro-SMEs. Senior bankers are now working with the Treasury on a new scheme which could be launched as early as next week, the report claimed.
The Coronavirus Business Interruption Loan Scheme currently provides lenders with a guarantee of 80 per cent of losses that may arise on loans of up to £5m but requires banks to credit check the business to ensure they are viable on the government’s behalf.
The terms of the scheme mean businesses must have been financially viable as of December 31, 2019, have the capability to repay the debt after the crisis and have security to back the loan in order to qualify.
This has resulted in a number of firms, particularly the smallest businesses which have never borrowed money before, being unable to access the credit needed to survive the coronavirus crisis.
If the government was to offer 100 per cent guarantees, the businesses would not have to pass the scheme’s credit checks so more businesses would qualify for the loans.
Just last week (April 16) questions were raised over the government’s support for the smallest firms at a Treasury select committee.
UK Finance chief Stephen Jones suggested the Treasury could extend the business loan scheme to help firms slipping through the net, adding the banking industry was helping the best they could within the structure of the loan scheme set up by the government.
Mr Sunak has previously dismissed the idea of 100 per cent government backed loans, arguing it would “not be just the government” but “actually all of us” as the taxpayer would be taking on the risk of the loans defaulting.
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