Small businesses will soon be eligible for new loans worth up to £50,000 ($62,000) backed by a 100% government guarantee, chancellor Rishi Sunak said on Monday.
The announcement of the new “bounce back” loans, which will be interest free for the first 12 months, comes as four million UK workers have been furloughed under the government’s job-retention scheme.
“Around half a million employers have already applied for help to pay the wages of over four million furloughed jobs,” Sunak said in the House of Commons, noting that these jobs “might otherwise have been lost.”
The Treasury said on Monday that the 500,000 furlough claims made thus far were valued at around £4.5bn.
Under the new loan scheme, small firms will be able to apply for loans of up to a value of £50,000 or 25% of their turnover, whichever is lower.
The chancellor called the scheme a “simple, quick, easy solution for those in need of smaller loans,” while the Treasury noted that no repayments will be due within the first twelve months.
“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,” Sunak said.
The scheme is designed to ensure that small businesses who need vital cash injections to keep operating can get loans approved in a matter of days.
Over 20,000 loans have been provided to small and medium-sized enterprises (SMEs) under the government’s coronavirus business interruption loan scheme, the Treasury said on Monday.
That is up from the 16,000 that had been disbursed by 23 April, when industry group UK Finance said that banks had lent £2.8bn ($3.4bn) to firms under the scheme, which offers 80% government-backed loans.
Sunak had up to now brushed off calls for the government to launch a 100% government-backed loan scheme, noting that comparisons with other countries did not take into account the “totality” of the support measures being offered in the UK.
The chancellor said he remained “unconvinced” by those arguing that all of the government’s loan schemes should be underwritten with 100% guarantees.
“We should not ask the ordinary taxpayers of 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,” he said.
Carolyn Fairbairn, the director general of the Confederation of British Industry, said on Monday that the new scheme would be “transformational.”
“Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster,” she said.
Calling the scheme “crucial,” Mike Cherry, the chairman of the Federation of Small Businesses, said that “swift delivery” of the loans was important.
There has been some consternation about the speed at which UK banks are extending loans under the government’s existing scheme.
Bank of England governor Andrew Bailey said earlier this month that banks must “put their backs into it” and disburse loans faster, warning businesses could go bust before receiving loans.