Small businesses will be able to apply for a 100 per cent government-backed loan of up to £50,000 to help them survive the coronavirus pandemic.
The Bounce Back Loan scheme, announced on Monday, is a new fast-track finance scheme for smaller firms that will enable them to access cash in a matter of days.
The new scheme will provide lenders with a 100 per cent 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 announcement of the new scheme follows calls from lending industry stakeholders for a 100 per cent guarantee on loans through the coronavirus business interruption loan scheme (CBILS), rather than the current level of 80 per cent.
Critics argued that leaving lenders with 20 per cent of the risk has slowed down the process of channelling funds to small firms.
“Our smallest businesses are the backbone of our economy and play a vital role in their communities,” said Chancellor Rishi Sunak.
“This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.”
The scheme will launch for applications on Monday 4 May. Firms will be able to access these loans through a network of accredited lenders.
The government will 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 Treasury said.
Industry bodies reacted positively to the news.
“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,” said Mike Cherry, national chairman of the Federation of Small Businesses.
“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.”
Dame Carolyn Fairbairn, CBI director-general, called the scheme “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,” she said.
“Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster.”