Chancellor overhauls emergency loan system for small firms

The Chancellor of the Exchequer, Rishi Sunak, has scrapped a key feature of the Business Interruption Loan Scheme, giving small businesses easier access to vital loans from high street banks. 

The emergency aid system, designed to provide Government-backed loans to small firms during the COVID-19 lockdown and avoid a spate of nationwide insolvencies, caused frustrating bottlenecks for applicants in its infancy. 

According to the Treasury, less than 1,000 of the 130,000-plus loan enquiries made to banks had been approved. The reason was that the scheme originally offered Government-backed loans to small businesses only if commercial loans were not available from their bank. In some cases, firms were being asked to shoulder commercial loans with interest rates as high as 30% after their initial 12-month interest-free period. 

The Government has subsequently relaxed the ruling of the scheme to ensure that banks are no longer required to assess whether small businesses are eligible for other commercial lending solutions. 

Any business with a turnover of up to £45m can access the Business Interruption Loan Scheme, with loans worth up to £5m available interest and fee-free for the first year. 

The Treasury has also confirmed that business owners seeking to borrow less than £250,000 will no longer have to provide personal guarantees for the funds. Many banks and high-street lenders had already promised this, but the Government will now enforce the new ruling across the board. 

For loans over £250,000, personal guarantees will be limited to 20% of any amount outstanding on the Coronavirus Business Interruption Loan Scheme (CBILS) lending after any other recoveries from business assets.

The Government has also sought to provide a lifeline for medium-sized businesses. Thousands of firms were previously deemed too large for the CBILS but too small for the COVID Corporate Financing Facility, aimed at supporting multinationals. 

CBILS is being revamped to offer Government-backed guarantees of 80% for loans worth up to £25m for businesses with an annual turnover between £45m and £500m. 

Mr Sunak said: “This is a national effort and we’ll continue to work with the financial services sector to ensure that the £330bn of Government support, through loans and guarantees, reaches as many businesses in need as possible.”

Date published 3 Apr 2020 | Last updated 23 Sep 2020