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UK small businesses are set to benefit from a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders.

UK chancellor Rishi Sunak announced on Monday 27 April that the new Bounce Back Loans scheme, which will provide loans of up to £50,000, to small and micro SMEs, would help bolster the existing package of support available to the smallest businesses affected by the coronavirus pandemic.

The scheme has been designed to ensure that small firms who need vital cash injections to keep operating can get finance in a matter of days, and comes alongside the £6 billion awarded in business grants, supporting four million jobs through the job retention scheme and generous tax deferrals supporting hundreds of thousands of firms.

The government, which has been consulting extensively with business representatives about the design of the new scheme, will provide lenders with a 100% 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 loans will be easy to apply for through a short, standardised online application. The loan should reach businesses within days- providing immediate support to those that need it as easily as possible.

Advanced as quickly as possible

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 government-supported Covid-19 support schemes have reportedly provided over £15 billion for business in just a few weeks. These include:

  • job retention scheme - more than 500,000 claims have been made to the value of £4.5 billion;
  • business grants - half a million business properties have benefitted from £6 billion of business grants;
  • the Coronavirus Business Interruption Loan Scheme (CBILS) - with over 16,000 loans agreed;
  • the Covid Corporate Financing Facility, which has provided over £14 billion for larger firms;
  • generous VAT deferrals worth billions of pounds; and
  • scrapped businesses rates and small business grant reliefs;
  • covering the cost of statutory sick pay;
  • the new scheme will run alongside the existing CBILS and Coronavirus Large Business Interruption Loan Scheme (CLBILS);
  • the government is also taking additional steps on CBILS to ensure that lenders have the confidence they need to process finance applications quickly, including removing the per lender portfolio cap for the government guarantee, and changing the viability tests that so that all banks will need to assess is whether a business was viable pre COVID-19

Reactions from the associations

Mike Cherry, Federation of Small Businesses National Chairman, 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.

“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.

“We are pleased to see the Chancellor and the Business Secretary listening to the needs of small businesses, and we will continue to work with them to make sure small firms and the jobs they provide are protected throughout this public health challenge and that small firms are at the forefront of leading the recovery.”

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Mike Deacon Director at National Association of Commercial Finance Brokers & MD at Asset Based Finance and Leasing (pictured above) told Asset Finance International: “Let’s see how it works out in practice”. It starts on 4 May – with a simple loan form to complete. The UK government is guaranteeing interest for the first 12 months, but borrowers are still fully liable to repay the loan.

“For our industry it is a mixed blessing. The positive is that it could save thousands of jobs and businesses. That will be good for the economy and in future for commercial finance brokers helping businesses with complementary additional debt requirements in future.

“There is some potential debt advisory work in the near term for brokers to help their customers complete and submit for the loan application. It does seem to be geared to provide a loan being the lesser of 25% of annual turnover and £50k whichever is applicable. It remains to be seen if banks will manage these loans (presumably they will) and that they will be on the CBILS partner scheme but not acting as CBILS lenders. “

“On balance this needed to be done for the whole UK economy. Not doing this would have been unthinkable for the future of the UK economy.”