Chancellor unveils 100% state-backed loan scheme for UK’s smallest businesses

The so-called “bounce back loans” will be available from next Monday (4 May), and give the UK’s smallest businesses guaranteed access to loans worth 25% of their turnover, up to £50,000.

According to Sunak, there will be no forward-looking tests of business viability or complex eligibility criteria that applicants will have to meet, and most firms applying through the scheme should be able to receive the funds within 24 hours.

The loans will be 100% guaranteed by the Treasury, meaning the Government will take on all the default risk, and interest on the loans will be paid by the Government for the first 12 months.

Announcing the scheme in the House of Commons earlier today, Sunak said: “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 often find it harder to access credit in the first place.

“If we want to benefit from their dynamism and entrepreneurial spirit as we recover our economy, they will need extra support to get through the crisis.

“Some businesses will not want to take on more debt; which is why our focus has been on cash grants, tax cuts and tax deferrals. But for others, loans will be part of the answer.”

Sunak added that he “remained unconvinced” that the Government should underwrite 100% of all loans, regardless of the size of the business.

“I’ve heard some calls to underwrite all our loan schemes with 100% guarantees,” he said.

“We should not ask ordinary taxpayers today and tomorrow to bare the entire risk of lending almost unlimited sums to some businesses that have very little prospect to paying those loans back and not necessarily because of the impact of the Coronavirus.”

The Government’s Coronavirus Business Interruption Loan Scheme (CBILs) forms part of a £350bn financial package unveiled by the Chancellor last month to help businesses navigate the Coronavirus crisis. 

While some within the industry have welcomed the scheme, others have said it isn’t in the interests of many hospitality businesses to try and obtain one of these loans.

Speaking to BigHospitality​ last month​​, London Union's Jonathan Downey suggested that the Government had to rethink its approach. 

He said: “The problem is twofold. Most businesses won’t qualify for a loan because the lender won’t consider them to be viable. And for those that do qualify, why would they want to take on more debt at a time when they have little to no income.  All it will do is postpone the problem and increase their liabilities.”

Meanwhile, the results of a recent survey by trade body UKHospitality have revealed the struggles faced by businesses​​ in the sector when trying to access the ​CBIL scheme.

Just under half (48%) of respondents said they had applied for a loan under the scheme, with 57% of those receiving a response saying they had had their bids turned down. 

Government-imposed State Aid rules accounted for over a quarter (26%) of rejections, alongside banks telling business to exhaust their own capital first (28%).