The UK’s smallest businesses will be able to apply for 100 per cent state-backed so-called bounce back loans worth up to £50,000 from today.
The government’s bounce back loans scheme provides micro loans worth 25 per cent of turnover, up to £50,000, just 24 hours after applying for them.
The minimum loan amount is £2,000 and there is a flat interest rate 2.5 per cent, with the government paying the first 12 months’ interest.
Chancellor Rishi Sunak said banks would not have to undertake “forward-looking viability checks” and that the government will take on all the default risk.
Banks are also not allowed to ask for personal guarantees for bounce back loans and there is no principal repayment in the first 12 months.
Commenting on the launch of the scheme, Institute of Directors chief economist Tej Parikh said: “The business interruption loan scheme has started to reach the front line, but small firms have still been having difficulty accessing finance.
“This additional measure should help more of those firms get the cash they need to see them through the weeks and months ahead.”
CBI chief economist Rain Newton-Smith added: “A 100 per cent government guarantee on loans and a simple way of applying will be a lifeline to many small businesses and sole traders under pressure.
“Banks have been operating at full throttle and must stay in overdrive to get more money out of the door faster. Time is of the essence.”
The bouncer back loans scheme comes after the government’s £330bn Coronavirus Business Interruption Loan Scheme (CBILS) has been criticised for being too slow in approving emergency finance to struggling businesses.
The government only guarantees 80 per cent of these loans, meaning more stringent checks by banks and a longer application process.
This has resulted in just 25,262 loans worth £4.1bn being lent out in the scheme’s first month.
Sunak said the bounce back loans will enable small businesses to “get the finance they need – helping them bounce back and protect jobs”.
Business secretary Alok Sharma added: “This new scheme of 100 per cent government-guaranteed loans gives owners of even the smallest businesses the confidence and flexibility to borrow a sum which works for them.
“This will help ensure they can continue to trade, and be a key part of our efforts to reboot the British economy.”