Government plans permanent state-backed small business loan scheme

Business could borrow anything up to £10m through 80% state-guaranteed bank loans in successor to existing coronavirus financial support

UPDATED: The government is planning to replace existing coronavirus business support with a permanent state-backed small business loan scheme from early April.

According to the Financial Times, it is expected to offer loans of up to £10m with an 80 per cent government guarantee, while interest rates will be capped at about 15 per cent.

In effect, the new state-backed SME loan scheme would extend the Coronavirus Business Interruption Loan Scheme (CBILS) but with a lower threshold. The minimum CBILS loan is £10,000.

>See also: Treasury eyes hitting self-employed gig workers with VAT charge

The 15 per cent interest rate is the same as the CBILS, whose interest rates differ according to each lender, but is far higher than the 2.5 per cent fixed interest rate of the parallel Bounce Back Loans Scheme (BBLS).

Research by our sister title GrowthBusiness found that lenders are charging anything between 3 per cent and 15 per cent for CBILS loans.

And the new state-backed SME lending scheme would have more stringent lending criteria than the BBLS, which has been criticised for just waving through loan applications in the government’s hurry to support businesses.

Controversially, the replacement state-backed SME lending scheme would reintroduce some element of personal guarantee for borrowers, which means they could lose their house or other assets if they do not keep up repayments. Banks were slammed for insisting on personal guarantees when the CBILS was first introduced in March.

>See also: Banks not cooperating with coronavirus loan, complain small businesses

Douglas Grant, director of CBILS lender Conister, said: “We fully support the UK government’s plans to launch a permanent replacement for the £65bn Covid loans programme to support SMEs … This more permanent financial support from the government will be welcome news to those resilient SMEs that have already shown extraordinary levels of adaptability and strength in the face of changing consumer behaviour.”

The original coronavirus business financial support schemes were launched in spring last year during the first lockdown.

Since then, all three schemes have backed £73bn of bank loans to 1.6m smaller businesses.

According to data released on Thursday, 1.5m companies have borrowed a total of £45.6bn under the Bounce Back Loan programme, which offers up to £50,000; more than 92,000 companies have borrowed £22bn under the CBILS, while almost £5.3bn was lent to 700 businesses through the Coronavirus Large Business Interruption Loan Scheme.

Further reading

A guide to getting a business loan during Covid-19