Small businesses will be able to secure a loan worth up to £50,000 with the Government guaranteeing 100% of the risk in the latest emergency scheme aimed at helping firms survive the coronavirus crisis.
Chancellor Rishi Sunak said the “bounce back loans” would have the interest paid by the Government for the first 12 months.
Sunak acknowledged that some small firms were struggling to access credit, and by guaranteeing the full value of the loan he hopes that lenders will allow companies to borrow the funds they need.
But he rejected calls for the Government to underwrite other coronavirus loan schemes with a 100% guarantee, insisting his new plan would “carefully target” the level of state support at those who need it most.
He told MPs: “I know that some small businesses are still struggling to access credit.
“They are in many ways the most exposed businesses to the impact of the coronavirus and often find it harder to access credit in the first place.
“If we want to benefit from their dynamism and entrepreneurial spirit as we recover our economy, they will need extra support to get through this crisis.”
The new “microloan scheme” would provide a “simple, quick, easy” solution, he said.
Sunak added: “Businesses will be able to apply for these new bounce back loans for 25% of their turnover up to a maximum of £50,000 with the Government paying the interest for the first 12 months.”
The loans will be available from 9am next Monday, with “no forward-looking test of business viability, no complex eligibility criteria, just a simple, quick standard form for businesses to fill in”.
No repayments will be due in the first 12 months of the bounce back loans.
The Government has already allocated £15 billion of support in response to the economic devastation caused by the virus and the lockdown measures, and Mr Sunak warned of more tough times to come.
“We should be in no doubt about the seriousness of the economic situation,” Mr Sunak said.
“The Office for Budget Responsibility have published a scenario showing that the coronavirus will have very significant impacts both at home and in the global economy.
“More than 1.5 million new claims have been made to Universal Credit.
“Over four million jobs have now been furloughed.
“Survey evidence suggests a quarter of businesses have paused trading.
“These are already tough times. There will be more to come.”
CBI director-general Dame Carolyn Fairbairn said the scheme could be “transformational”, adding: “Banks now need to continue their work in overdrive to get the loans flowing faster.”
Federation of Small Businesses national chairman Mike Cherry said: “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.”