Coronavirus: Chancellor revamps loan scheme to get banks to allow small firms access to cash

Rishi

Small businesses should find it easier to access the Coronavirus Business Interruption Loan Scheme (CBILS) following a further intervention by Chancellor Rishi Sunak.

Banks and trade bodies believe it could now allow the loosening of bank purse strings following the suggestion that despite £330 billion of loans available, and guaranteed 80% by the government, only £90 million of business interruption loans had been approved for nearly 1,000 firms and £1.9 billion corporate finance provided to larger firms hit by COVID-19.

Mr Sunak also announced a new new scheme for larger companies with turnovers up to £500m.

RBS chairman Sir Howard Davies told the BBC there had been issues but that he expected to see a “sharp increase” in lending to small firms in the next few days.

Owners of small firms struggled with onerous eligibility criteria, interest rates of up to 30% and were being asked for personal guarantees for the government backed loans.

Now applications will not be limited to businesses that have been refused a loan on commercial terms, extending the number who benefit. But interest rates banks can charge have not been capped and banks cannot ask company owners to guarantee loans with their own savings or property when borrowing up to £250,000.

Larger firms with a turnover of up to £500m will also be eligible for more help – with state-backed loans of up to £25m available to firms with revenues of between £45m-500m.

The government is also stopping lenders from requesting personal guarantees for loans under £250,000 and making operational changes to speed up lending approvals. The government will continue to cover the first twelve months of interest and fees.

The new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will ensure that more firms are able to benefit from government-backed support during this difficult time. It will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million. This will give banks the confidence to lend to more businesses which are impacted by coronavirus but which they would not lend to without CLBILS. Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest and further details of the scheme will be announced later this month.

Chancellor of the Exchequer, Rishi Sunak MP, said, “We are making great progress on getting much-needed support out to businesses to help manage their cashflows during this difficult time – with millions of pounds of loans and finance being provided to hundreds of firms across the country. And now I am taking further action by extending our generous loan scheme so even more businesses can benefit. We have also listened to the concerns of some larger businesses affected by COVID-19 and are announcing new support so they can benefit too.

He continued, “This is a national effort and we’ll continue to work with the financial services sector to ensure that the £330 billion of government support, through loans and guarantees, reaches as many businesses in need as possible.”

Emma McClarkin, Chief Executive of the British Beer & Pub Association, said,

“We welcome the Chancellor’s statement today, bolstering credit lines to businesses affected by the COVID-19 crisis.

“The all-important detail on the support remains to be seen, but if done right it should help out those businesses in the ‘squeezed middle’. The majority of our membership falls into this bracket and so haven’t had access to the support that the Government intended.

“It is a shame that the loans will be at commercial rates meaning successful businesses, through no fault of their own, will be forced to get into more debt due to this crisis. Nonetheless, it is imperative now that the banks take heed of this clear direction from Government and get the cash to businesses as fast as possible ensuring the great British pub industry survives this crisis and is in the best position to reopen in the future.”

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