UPDATED: Rishi Sunak has overhauled the government’s coronavirus small business loans scheme in response to mounting anger.

The government has scrapped the requirement for small businesses to show that they have no other means of funding before accessing the Coronavirus Business Interruption Loan Scheme (CBILS).

Several banks had asked directors to put their homes or savings up as collateral and charging interest rates of up to 30 per cent after the first interest-free 12 months.

Changes announced by the chancellor include:

• You don’t have to be disqualified from commercial lending in order to access the scheme
• All lenders banned from asking for personal guarantees for loans of under £250,000, something which the high-street lenders had already publicly pledged to
• Coronavirus Large Business Interruption Loan Scheme (CLBILS) announced to bolster support for larger firms not currently eligible for loans
• Government widens scheme to include bigger companies with turnover of between £45m-£500m that want to borrow up to £25m

See also: How do I apply for a Coronavirus Business Interruption Loan?

Only 980 loans issued

So far, under 1,000 firms have borrowed £91m so far through the coronavirus small business loans scheme, despite banks receiving 130,000 enquiries about the CBILS. And that is just 980 firms out of Britain’s 5.9m small businesses employing 16.6m people nationwide.

Skipton Business Finance was the first lender to make a CBIL loan, with other lenders including Clydesdale Bank, Danske Bank, Finance For Enterprise, HSBC, Newable Business Loans and the Northern Powerhouse Investment Fund all offering facilities.

However, some of the high-street banks which have been singled out for criticism including Barclays and Lloyds are conspicuous by their absence among the 980 loans offered so far, per British Business Bank.

British Business Bank, which oversees the scheme, says these new improved terms can be retrospectively applied to any CBILS facilities offered since March 23.

Mr Sunak will speak to bank executives personally next week to ensure that the spirit of the small business lending scheme is now being followed.

Responding to today’s Treasury announcement, Federation of Small Businesses national chairman Mike Cherry said: “Removing the need to be offered standard products first – with an interruption loan as an afterthought – would mark a big step forward. So too would be ensuring small businesses can qualify for an emergency loan application on the basis of one simple criterion: whether or not you’ve been negatively impacted by the spread of coronavirus is the only question that counts at this juncture.

Interest rates left uncapped

However, Coronavirus Business Interruption Loan Scheme interest rates have been left uncapped, with banks reportedly charging up to 35 per cent interest

The Federation of Small Businesses has called for any coronavirus emergency business loans to have their interest rate capped at 6 per cent.

Cherry said: “Banks should also be pushed to exercise restraint when it comes to setting the rates that will apply on these loans once the initial twelve months is up. No one should be profiteering from these loans which are not standard commercial transactions, but survival mechanisms.”

Denice Purdie of Kinross-based Kapital Residential told Small Business that Bank of Scotland was advising her to apply for a conventional bank loan at a much higher interest rate. “This is not guaranteed and will take too long,” she said.

Only creditworthy SMEs can apply

Businesses applying for the coronavirus small business loans, however, will still have to show they were “creditworthy” before the crisis to ensure the government does not prop up failing businesses. Given that only firms struggling with not enough cash in the bank are applying for loans – no small business owner willingly takes out a loan – then the likelihood is that the majority of loan applications will still be refused.

Bankers push back

However, bankers are pushing back against the public perception that, once again, they have their snouts in the trough when others are suffering. Insiders tell the Daily Telegraph that they feel the chancellor and Treasury officials are unfairly singling them out.

One banking executive told the Telegraph that the loan scheme was announced as being open to everyone, which was not how it was set up in the fine print. Rather, business which were viable, had collateral and could repay standard commercial loans were excluded from the scheme.

“That forced the banks to make a judgment and it is those judgments that have generated an incredible amount of anger,” one banking executive said.

Another accused the Treasury of staggering double-standards, when the blame banks for problems with a scheme which was landed on them overnight – and yet HMRC still has to, for example, launch its application portal for the Coronavirus Job Retention Scheme, despite the scheme being launched a fortnight ago.

Nearly 1m SMEs on verge of collapse

The chancellor announced the scheme last month in which the state underwrites 80 per cent of the risk of bank loans of up to £5 million.

According to accountancy group Corporate Finance Network, nearly 1m small businesses are on the verge of collapse within four weeks because they cannot access the coronavirus small business loans.

Furloughing staff

Meanwhile, half of UK companies are planning to furlough many of their staff because of coronavirus.

Forty-four per cent of companies surveyed by the British Chambers of Commerce say that almost half their staff would be paid through the Coronavirus Job Retention Scheme. One-third said that were planning to furlough more than 75 per cent of their workforce over the next week. And one fifth of businesses have already closed down temporarily, the BBC survey found – mirroring another survey this week by Be the Business.

A separate survey by the CIPD, the body for HR professionals, has found that more than half of employers expect to furlough staff using the Coronavirus Job Retention Scheme. A quarter said they expect to cut jobs, with one in 10 expecting to lose up to half of their staff permanently.

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