Yahoo Finance Pressure on government to back 100% of coronavirus loans
The Treasury is facing growing calls to guarantee 100% of loans made to small businesses in a bid to speed the flow of cash to companies and prevent a wave of bankruptcies.
The Confederation of British Industry (CBI) and the Federation of Small Businesses (FSB) both renewed calls on Thursday for the government to increase the state guarantee on coronavirus loans from 80% to 100% for smaller businesses.
It adds to growing pressure on Chancellor Rishi Sunak to offer even greater support to Britain’s smallest businesses to ensure they don’t collapse. Bank of England governor Andrew Bailey, former Chancellor George Osborne, and the head of industry group UK Finance have all backed calls for an increased state guarantee.
The CBI said the government should stand behind 100% of loans of up to £500,000 ($616,097) made under the coronavirus business interruption loan scheme (CBILS).
The FSB, meanwhile, said the government should raise its backing to 100% for loans of up to £30,000.
The Chancellor has resisted calls for further state guarantees but the Financial Times reported on Friday morning that Sunak could be bending under the pressure. The paper said the Chancellor had called in bankers to help draft a scheme to guarantee 100% of loans below £25,000, although it was not clear if this policy had gone beyond the feasibility stage.
The calls from the FSB and CBI for further state action came hours after new figures showed that just £2.8bn of state support had reached the frontlines of small businesses in the month since special measures were announced by the Treasury.
Read more: UK economy suffers record shock and 'unprecedented' job losses
“These figures mark an improvement,” FSB chair Mike Cherry said. “But we need to see far more from the banks where the speed of processing applications and making money available to the smallest businesses are concerned.”
Banks are covered for only 80% of losses on loans under the CBIL scheme and so must still undertake full due diligence, which slows the process. A 100% government guarantee would mean lighter checks and allow companies to access cash faster.
Germany and Switzerland have both agreed to stand behind 100% of loans extended to small businesses, leading to a quicker deployment of capital. Swiss banks issued £11.8bn-worth of loans to small businesses in just the first few days of its programme, according to Reuters.
The UK government is reluctant to extend the state guarantee to 100% as it could leave taxpayers with greater losses in the future.
Stephen Jones, head of industry group UK Finance, told the Treasury Select Committee last week the government was “expressing a very different risk appetite” to Germany and Switzerland. However, Jones backed calls for a 100% guarantee of loans below £25,000.
The CBI said on Thursday the process for applying for loans below £25,000 should be simplified.
Read more: Over 80% of UK firms unable to cope if lockdown lasts six months
“The current loan scheme is up, running and working for many,” said CBI director general Dame Carolyn Fairbairn. “Now we need another big push to get money out the door faster.
“This is a race against time, and the only winning strategy is scale, speed and simplicity. Nothing should be left on the table.”
Asked about extending loan guarantees last week, chancellor Rishi Sunak said: “Is there an argument for looking at something like that? Of course there is. We continually look at everything other countries are doing.”
