New loans scheme from chancellor for small firms wins applause

Chancellor Rishi Sunak’s plan to launch a new micro loan scheme for small businesses was welcomed by the thousands of businesses unable to qualify for its slow-moving coronavirus business interruption loans scheme.

Called Bounce Bank loans, they will offer small businesses 25% of their annual turnover up to a maximum of £50,000.

Critically, the government will back 100% of the loan, unlike the CBILS scheme which is 20% underwritten by banks.

Sunak has come under pressure to act after only a tiny percentage of businesses applying for CBILS loans were approved.

The backlog has been blamed on the banks worrying about being on the hook for a fifth of the debt and the lengthy due diligence that they undertaking before lending.

Today, Sunak stripped smaller firms out of that system, changing it so the borrower only has to fill in a quick, standard form. There will be no forward-looking tests of how secure the company will be.

They are planned to be available from 9am on Monday.

Treasury Select Committee chairman Mel Stride has been calling on 100% guarantees for smaller firms, and welcomed Sunak’s announcement.

He added: “However, the success of the new scheme will still depend 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.”

Banks have privately argued that every time the Treasury tinkers with the schemes, they have to retrain all their staff and reassess applicants’ requests, adding to the logjam of unprecedented demand.

Others have cited concerns that without any proper due diligence, loans will be given to companies who may not be able to afford to pay them back or, in a tiny minority of cases, encourage fraudulent applications.