Britain’s smallest businesses will be offered 100% government-backed rescue loans after sharp criticism for the slow take-up of emergency bank lending during the coronavirus crisis. In a climbdown following mounting pressure on the government to overhaul its emergency loan scheme after thousands of cash-starved firms were denied support, the chancellor, Rishi Sunak, said small firms would be offered new “bounce back loans” from next week with full government backing. Sunak had said as recently as last week he was “not persuaded” by calls to provide a 100% state guarantee, despite less than half of all applicants for support securing an emergency loan. Designed to provide smoother access to cash for small companies facing difficulty accessing existing government-backed lending, Sunak said businesses would be able to apply for “micro-loans” worth up to 25% of their turnover, up to £50,000. The chancellor had faced rising pressure from business groups and Labour to boost the generosity of the government guarantee on its emergency loan scheme during the pandemic. However, Sunak stopped short of providing a 100% guarantee to big firms, saying taxpayers shouldn’t be exposed to the risks of large company failures.
Announcing the scheme in parliament, Sunak said small firms could apply for the new loans from high-street banks from as early as next Monday. “I know that some small businesses are still struggling to access credit. They are in many ways the most exposed businesses to the impact of the coronavirus and find it hard to access credit in the first place. They will need extra support to get through this crisis,” he said. The new loans provide high-street banks with a guarantee that the state will refund the bank for the entire value of the loan if a borrower is unable to repay, up from 80% on the government’s existing coronavirus business interruption loan (CBILs). Although firms do not get government money if they cannot repay a loan, the scheme is designed to encourage banks to lend to firms when they might ordinarily turn down a loan application, because the state shoulders all of the risk. The Treasury had previously resisted calls to offer 100% guarantees, believing that banks needed to share the risk with taxpayers. Speaking at the daily Downing Street press conference last week, the chancellor said: “I’m not persuaded that moving to a 100% guarantee is the right thing to do.” Although other countries including Switzerland have offered 100% guarantees on emergency lending, Sunak said Britain had offered firms much more help through other means, including tax cuts and wage subsidies, meaning such steps were not required. However, thousands of businesses across the country have continued to complain that the CBILs scheme was cumbersome and included too many financial hurdles that many businesses were unable to overcome.
The business lobby group the CBI, and the governor of the Bank of England, Andrew Bailey, had intervened in recent weeks, suggesting that an increase in the state-backed guarantee to 100% would help to remove bottlenecks and speed up the lending process. Although buckling to pressure to offer full backing to small firms, Sunak dismissed calls to expand the emergency loan scheme for all companies, telling parliament: “We should not ask that ordinary taxpayers 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.” The former chancellors George Osborne, Norman Lamont and Sajid Javid, and the shadow business secretary, Ed Miliband, had all called on Sunak to move to 100% government-backed business loans. Miliband said it was welcome that Sunak had changed his mind, but added: “There remain very serious issues about the working of CBILs for small- and medium-sized enterprises seeking more than £50,000 support. They will be asking why they cannot have quick turnaround loans to get them through the crisis and whether CBILs will remain as slow and cumbersome as it has so far been.”