Chancellor announces 100% government backed loans for small businesses

Coronavirus: Companies will be able to borrow between £2,000 and £50,000 and loans will be interest free for the first 12 months

Chancellor Rishi Sunak

Chancellor Rishi Sunak

Small businesses can now apply for financial support using a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders, the Chancellor has announced.

On 27 April, Chancellor of the Exchequer Rishi Sunak said the new ‘Bounce Back Loans’ scheme would help bolster the existing package of support available to the smallest businesses affected by the coronavirus pandemic. The scheme will provide loans of up to £50,000

The Government will provide lenders with a 100% guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months.

The loan scheme uses a short, standardised online application. HM Treasury said the loans should reach businesses within days.

The Chancellor 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.”

Business Secretary Alok Sharma said: “Our small businesses are vital in ensuring our communities thrive and will be crucial in creating jobs and securing economic growth as we recover. This rapid loan scheme offers additional protection so small companies across the country can get access to the finance they need immediately, as part of the unprecedented package of support we have put in place.”

The scheme will launch for applications on Monday 4 May. Firms will be able to access the loans through a network of accredited lenders.

The Government said it would work with lenders to ensure loans delivered through this scheme are advanced as quickly as possible and agree a low standardised level of interest for the remaining period of the loan.

The announcement has been welcomed by business organisations.

Mike Cherry, National Chair of the Federation of Small Businesses, said: “This crucial new initiative should enable thousands of small businesses to access the working capital they need quickly, helping to protect the millions of jobs they provide in every part of the UK.

“This step forward marks another decisive intervention from the Treasury and the Business Department, building on existing support in an innovative way. Swift delivery is now key, and we also look forward to working with government in the long-term to enhance market competition, including that provided by non-bank lenders.”

The scheme has also been praised by Dame Carolyn Fairbairn, Director-General of the CBI, who said: “The Chancellor’s new 100% guaranteed loan scheme for small businesses is transformational. Sole traders, micro-firms and entrepreneurs will now have a simple route to fast finance to stay afloat, without red tape or time-consuming checks. Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster.”

Jonathan Geldart, IoD Director General, added: “This is a welcome intervention, which should help ensure more firms can access the finance that could see them through this crisis. Business leaders will appreciate the government’s continued flexibility in adapting their response to what’s happening on the ground.”