Sunak announces state-backed loans for virus-hit small businesses

Chancellor Rishi Sunak on Monday launched government-backed micro-loans of up to £50,000 for small businesses hit by coronavirus fallout.

Sunak, unveiling his latest emergency COVID-19 scheme before parliament, said the “bounce back” loans would have the interest paid by government for the first year.

The new plan is the latest in a series of multi-billion-pound packages to help those affected by the deadly disease in Britain.

“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 told lawmakers.

“So today we are announcing a new micro-loan scheme, providing a simple quick easy solution for those in need of smaller loans.

“Businesses will be able to apply for these new ‘bounce back’ loans to 25 percent of their turnover, up to a maximum of £50,000.”

The loans will be available from lenders from next Monday, while businesses will only have to fill in a simple standard form with no complex eligibility criteria.

Sunak vowed that funds will then arrive within 24 hours of approval.

“I know that some small businesses are still struggling to access credit,” he added.

“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 the dynamism and entrepreneurial spirit as we recover our economy, they will need extra support to get through this crisis.”

Late last week, Bank of England policymaker Gertjan Vlieghe had warned that coronavirus now threatens potentially the worst recession in several centuries in Britain.

Britain’s Office for Budget Responsibility (OBR) fiscal watchdog has warned that coronavirus could shrink the economy by 13 percent in 2020.

“We should be in no doubt about the seriousness of the economic situation,” added Sunak, noting the OBR has warned coronavirus will have “very significant impacts” both at home and in the global economy.

So far, more than four million jobs have been furloughed with 80 percent of wages paid by government under emergency support measures, while there have been more than one and a half million new claims for Universal Credit welfare support, according to Sunak.

“These are already tough times and there will be more to come,” he said, adding survey evidence suggested more than a quarter of UK businesses had stopped trading.

“And while our interventions have saved millions of jobs and businesses, we cannot save every job and every business.”

Most British businesses have been shut to the public since March 23 under a government lockdown to slow the spread of COVID-19, the respiratory disease that the coronavirus can cause.

The government last month announced an emergency 330 billion-pound credit scheme including loans of up to 5 million pounds for small and medium-sized companies, with state guarantees of 80%.

But that programme got off to a slow start, with many companies saying they were struggling to get banks to approve their loans.

Sunak said banks had now provided £3.4 billion in 20,000 loans via the government’s Coronavirus Business Interruption Loan Scheme (CBILS). The Bank of England had separately issued more than £14 billion to bigger firms.

BoE Governor Andrew Bailey suggested this month that 100% state guarantees for the smallest loans might break a backlog in loans applications.

Business organisations broadly welcomed the new scheme, but said time was of the essence for many small businesses struggling with cash flow.

“This new route for our smallest companies to apply quickly and get a fast decision will be crucial to those who have struggled to get a CBILS loan,” British Chambers of Commerce Director General Adam Marshall said.