Rishi Sunak unveils coronavirus ‘bounce back’ micro-lending plan but resists full state backing for bigger loans
The Chancellor said 100% state backing for bigger loans could leave taxpayers on the hook.
Rishi Sunak has unveiled a new state-backed loan scheme for small businesses in a bid to help them “survive” the coronavirus crisis.
But the Chancellor is resisting calls to ramp up the level of state backing for firms covered by existing loan programmes, despite calls from some MPs for him to go further.
Mr Sunak said the 100% government-backed ‘Bounce Back’ loan scheme would be up and running in a week’s time, allowing businesses to borrow between £2,000 and £50,000 interest free.
The Government will underwrite the full amount of the loan in a bid to encourage lenders to get money out the door, and the Treasury promised that the new scheme would be accessible “through a short and simple form”.
The state will also cover any fees and interest for the first 12 months and no repayments will be asked for during the first year.
Mr Sunak said: “Our smallest businesses are the backbone of our economy and play a vital role in their communities. This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.
“This is in addition to business grants, tax deferrals, and the job retention scheme, which are already helping to support hundreds of thousands of small businesses.”
However, Mr Sunak batted away calls from some business groups as well as the Labour Party to extend the 100% guarantee to those who have asked for help under the the Government’s already-up-and-running Business Interruption Loan Scheme.
That programme sees a state guarantee of 80% for loans of up to £5m, and the Chancellor said: “I’ve heard some calls for government to underwrite all our loan schemes with 100% guarantees. I remain unconvinced by the case for doing that universally.”
Speaking in the Commons, he added: “We should not ask the ordinary taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sum, 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.
"The Germans and Americans are also tough minded, but have gone for 100% support" - former Cabinet minister David Davis
“So I do not think it is appropriate to provide 100% guarantees on all of our schemes.”
The new micro-loan scheme was hailed as “excellent news” by Tory former Cabinet minister David Davis - but he doubled down on his call for the Government to “underwrite 100% of business interruption loans”.
“The Swiss did this, and they are not known for being profligate,” he said. “As a result they had 76,000 loans made in 8 days, normally on the basis of an A4 application form.
“The Germans and Americans are also tough minded, but have gone for 100% support. We need to do the same to make this work.”
Labour’s new Shadow Chancellor, Anneliese Dodds said other countries were “guaranteeing 100% of their SME loans and have stripped off normal commercial loan requirements”.
“And while it’s a relief to hear from the Chancellor that there will now be a full guarantee for loans of up to £25,000, we need to know that normal commercial loan requirements will not continue to clog up the system,” she said.
“So will he also be changing the rules for the scheme, so we can get money to those SMEs that really need it?”
But the new scheme has earned plaudits from the Federation of Small Businesses.
Chairman Mike Cherry said: "To date, the existing interruption loan scheme has not been working for the small firms that make-up 99% of our business community.
“The decision by the Chancellor to listen to our recommendation for a 100% guarantee on smaller loans, alongside the creation of a new fast-track system for those applying for them, will give hope to thousands.”
He added: “From here, we need the right delivery. The new fast-track system must be established by next Monday with money delivered 24 hours after a successful application as promised."