Govt offers fully backed loans for SMEs

Govt offers fully backed loans for SMEs

The chancellor has revealed a 100 per cent government-backed loan scheme which could see small businesses struggling amid the coronavirus pandemic access funds of up to £50,000 in a matter of days.

In a statement yesterday (April 28) Rishi Sunak announced the Bounce Back Loans scheme was intended to help the smallest of businesses with loans of between £2,000 and £50,000, which will remain interest free for a year. 

The new scheme is intended as a fast-track option, with the government hoping small firms which need "a vital cash injection to keep operating" can get finance in as little as 24 hours. 

Until now the government's Coronavirus Business Interruption Loan Scheme has provided lenders with a guarantee of 80 per cent on losses which may arise on loans, but Mr Sunak was reported to have wanted to extend this to a 100 per cent guarantee for the smallest of firms. 

Under the latest Bounce Back Loans scheme the government will provide lenders with a 100 per cent guarantee for the loan and pay any fees and interest for the first 12 months. 

The scheme will launch for applications on May 4 and will be accessed through a list of accredited lenders in the UK. 

It arrives amid concerns the smallest businesses in the UK were potentially slipping through the net of the government's economic response tot he Covid-19 crisis. 

Mr Sunak said: "Our smallest businesses are the backbone of our economy and play a vital role in their communities.

"This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.

"This is in addition to business grants, tax deferrals, and the job retention scheme, which are already helping to support hundreds of thousands of small businesses."

The government has also made changes to its CBILS in a bid to ensure loan applications are processed quickly, including removing the per lender portfolio cap for the government guarantee and amending the viability tests so banks will only need to assess whether a business was viable pre Covid-19. 

In response to the announcement yesterday the Financial Conduct Authority has made changes to the criteria lenders must apply when considering firms for a loan under the government scheme. 

As an interim measure pending the roll-out of the Bounce Back Loan scheme, the regulator said firms applying for the CBILS did not need to comply with some of its rules on creditworthiness where the lending was regulated. 

These rules relate to lenders carrying out a "reasonable assessment" of a customer’s creditworthiness before taking the process forward.

But the FCA warned lenders must continue to carry out creditworthiness assessments in line with its rules on all other regulated lending. 

The watchdog said: "The unprecedented nature of the current coronavirus pandemic and the impact on the economy has created a climate of deep uncertainty and anxiety for the economy, business and consumers.

"The FCA recognises the government’s CBILS schemes need to be able to take fast and efficient lending decisions.