Small business gets 100% state-backed loan lifeline

Chancellor Rishi Sunak unveiled a new 100% government-backed loan scheme which will provide loans of up to £50,000 for small businesses from Monday.  

28th Apr 2020 – Source Accountancy Web

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 on Monday 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 and the government will pay the interest for the first 12 months.

Much to chagrin of businesses and accountants who have cried out for the government to underwrite CBILS, Sunak “remains unconvinced” and doesn’t think it is “appropriate” to provide blanket 100% guarantees.

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.

Amongst other gripes, accountants and businesses have criticised banks for being slow to approve CBIL applications and being too complex.  

However, the government is exploring other avenues to speed up the CBILS applications process. These additional steps include 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 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.”

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 as AccountingWEB member Ireallyshouldknowthisbut… discovered when investigating the application form, businesses will be unable to claim if they have an existing loan. There is also no reference to any personal liability.

“If there isn’t any, then it will be ‘free money’ if you are going down the tubes,” they noted.

Responses to the new Bounce Back 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.”

Labour shadow business secretary Ed Milliband also welcomed the 100% underwriting, but still had some concerns: “Jury is very much out on SMEs requiring more than £50,000 in loans as well as challenges facing those for whom debt doesn’t work. This will only become more pressing,” he tweeted.

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