Treasury mulling 100% government-backed loans for smallest firms

The Treasury is considering introducing 100% government-backed rescue loans for Britain’s smallest companies after the slow take-up of bank lending by businesses during the Covid-19 crisis.

The chancellor, Rishi Sunak, is believed to be close to making a decision about adapting the current scheme, which has come under criticism in the last week from business lobby groups, former chancellors and the governor of the Bank of England.

Thousands of businesses have complained that the Coronavirus Business Interruption Loan Scheme (CBILS), which is run by the British Business Bank, is cumbersome and includes financial hurdles that many businesses are unable to overcome. Currently, the government underwrites 80% of the value of the loan but is now giving serious consideration to raising that to 100%, in a development first reported by the Financial Times.

The Institute of Directors has joined the CBI in calling for 100% state-backed loans to circumvent onerous commercial bank lending rules, saying this would unlock a system that is currently expanding at a slow crawl.

The former chancellors George Osborne, Norman Lamont and Sajid Javid and the shadow business secretary, Ed Miliband, have called on Sunak to move to 100% government-backed business loans.

The Treasury has already had to change its criteria to get money out more quickly to businesses that may otherwise fail to survive the lockdown. It has banned personal guarantees that put business owners’ property at risk, and scrapped a controversial requirement for banks to offer loans at commercial interest rates – reportedly as high as 12% – to any eligible businesses before offering a CBILS application.

The latest weekly data released by the banking lobby group UK Finance on Thursday showed that lending under CBILS had reached 16,624 companies, which accounts for just 40% of the 36,000 formal applications lodged with banks so far. However, the amount of lending to small and medium-sized businesses under CBILS has more than doubled to £2.8bn over the past week.

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While approvals have increased from a 21% rate a week earlier, critics are still concerned that banks are not able to get money fast enough to businesses that need it most.

Germany and Switzerland have pushed out tens of thousands more loans to businesses after putting in place standard forms and common criteria for high street banks to follow. France has agreed €20bn (£17.5bn) of loans, which have a 90% state guarantee, to more than 170,000 businesses and expects to process a further €20bn by the end of the month.

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