100% state-backed loan lifeline for small business

who du nelson EaoUkLIkQ unsplash scaled

The Bounce Back Loan Scheme will enable small businesses affected by the pandemic to borrow between £2,000 and £50,000 in an initiative described by the Chancellor as “an easy solution for those in need of smaller loans”.

Sunak assured the House of Commons that businesses will only need to apply through a short, standardised online application and will get the loans within 24 hours of approval. “There will be no forward-looking tests of business viability; no complex eligibility criteria; just a simple, quick, standard form for businesses to fill in,” said Sunak.

Businesses can apply for 25% of their turnover up to a cap of £50,000 and the government will pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months.

Sunak highlighted how the £50,000 cap would reduce the risk to the taxpayer while still helping the smallest businesses. “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 coronavirus,” he told the Commons.

The Bounce Bank loan scheme joins other government initiatives for coronavirus-hit businesses, such as the existing Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS). But so far accountants and business owners have criticised banks for being slow to approve the overly complex CBILS applications. However, the government is exploring other avenues to speed up the CBILS applications process by removing the per lender portfolio cap for the government guarantee and changing the viability tests – banks will just need to know if the business was viable before the pandemic.

The chair of the Treasury Committee Mel Stride said the success of the new Bounce Back scheme depends on the actions of lenders: “It is essential, therefore, that there is full and regular transparency on the progress of this scheme in order to get this further vital lending out the door fast.”

Responses to the scheme have been positive. Mike Cherry, the chairman of the Federation of Small Businesses, deemed the “crucial new initiative” a “decisive intervention from the Treasury and Business department”, but added that “swift delivery is now key”.

CBI Director-General Dame Carolyn Fairbairn ramped up the pressure on banks: “Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster.”