Thursday 2 April 2020 10:30 pm

Chancellor shakes up coronavirus loan scheme after criticism of banks

Chancellor Rishi Sunak said tonight that he is extending a coronavirus loan scheme for small businesses and introducing a new loan scheme for businesses with revenue up to £500m.

The Treasury also said it would ban lenders from requesting personal guarantees for loans under £250,000. And Sunak pledged “operational changes” to speed up lending approvals. That follows criticism of the way high street banks were administering the scheme.

Read more: Coronavirus: What does the chancellor’s support mean for businesses and employees?

The coronavirus business interruption loan scheme means businesses with a turnover up to £45m can apply for a loan of up to £5m.

The scheme is run by high street banks such as RBS, HSBC, Lloyds and Barclays. The government has promised to cover 80 per cent of the loans they write.

The government is also covering the first 12 months of interest and fees.

The scheme has aroused controversy after banks said some firms that applied were not eligible. Instead banks asked them to sign up to regular loan products.

Banks also faced criticism for charging high rates of interest and seeking personal guarantees from directors.

Business bodies also expressed fear that money would not reach firms fast enough. They warned this could lead to a possible wave of insolvencies.

Tonight the Treasury said more than £90m of loans to nearly 1,000 businesses have been approved under the new programme.

Government plans scheme for mid-sized firms

Read more: Calls grow for coronavirus loans rethink as almost half of UK firms see revenues sink

The Treasury also said it is planning a new loan scheme for businesses with revenue between £45m and £500m.

This follows concerns that medium-sized businesses were missing out. They were too large to apply for the loan scheme and too small for a government debt-buying programme for larger companies.

The new coronavirus large business interruption loan scheme (CLBILS) will provide a government guarantee of 80 per cent. This will enable banks to make loans of up to £25m to firms with an annual turnover of between £45m and £500m.

Sunak said: “This is a national effort and we’ll continue to work with the financial services sector to ensure that the £330bn of government support, through loans and guarantees, reaches as many businesses in need as possible.”

Businesses welcome coronavirus loan changes

Adam Marshall, director-general of the British Chambers of Commerce, said:

We’re pleased that the chancellor is listening and responding to the real-world concerns posed by firms across the UK who are urgently trying to access financial support.

Read more: Treasury set to overhaul coronavirus loan scheme to avoid insolvencies

Dame Carolyn Fairbairn, director-general of the CBI said:

The chancellor’s measures are a big step forward. They will help deliver cash faster to firms battling for survival in the headwinds of the pandemic.

Mike Cherry, national chair of the Federation of Small Businesses, said:

Time is of the essence and therefore we welcome government action in ensuring that any viable small business that has been negatively impacted by the coronavirus can now directly access CBILS rather first being offered a bank’s own standard commercial lending product.

Removing personal guarantees for all commercial loans below £250,000 is also very welcome. Taking on debt at the current time is a daunting prospect for many small businesses and the self-employed.

Read more: Government launches £330bn coronavirus business loan scheme

Chief executive of UK Finance, Stephen Jones, said:

Lenders have been working closely with government since implementation to ensure the scheme can operate in the best way possible to get money to viable businesses that need it.

The reforms to the government scheme confirmed by the chancellor are important changes that should help viable businesses access the help they need.