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Reversal welcomed

Sunak backtracks and delivers 100% loan guarantee

Rishi Sunak introduced the loan scheme

Small firms are to get access to 100% taxpayer-backed loans after complaints over slow delivery.

Chancellor Rishi Sunak told the House of Commons the “bounce back loans” would start next week, offering firms loans up to £50,000 within days of applying.

It aims to unlock a backlog of credit checks by banks amid fears many small firms could fold before getting loans.

The scheme requires filling in a two-page self-certification form online.

It 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.

Banks have come under fire for delays in handing out loans, but have blamed the heavy workload, need to complete the necessary credit check, and a shortage of staff.

Scottish Secretary Alister Jack said: “It is great news that the Chancellor is to provide new UK Government-backed loans to businesses across the UK, with the UK Government guaranteeing 100 per cent of the loans.

“This new scheme comes on top of the unprecedented levels of support we have put in place to make sure that our economy can recover once we get through the coronavirus crisis.”

Dame Carolyn Fairbairn, CBI Director-General, said: “The Chancellor’s new 100% guaranteed loan scheme for small businesses is 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.

“Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster.

“It’s good to see the Chancellor listening to business, proving that where there’s a need to adjust schemes, he will do what it takes. It will be vital to maintain this approach in the months to come. Every job saved today will ensure a faster recovery tomorrow.”

Federation of Small Businesses (FSB) National Chairman Mike Cherry said: “To date, the existing interruption loan scheme has not been working for the small firms that make-up 99% of our business community.

“The decision by the Chancellor to listen to our recommendation for a 100% guarantee on smaller loans, alongside the creation of a new fast-track system for those applying for them, will give hope to thousands. 

“The headline terms will be hugely welcomed by the sole traders and micro businesses that make-up 95% of the small businesses community. Removing the need to provide forecasts marks an important step forward – small firms cannot be expected to predict the future in this climate.” 

However, Ed Miliband, Labour’s Shadow Business Secretary, said: “There remain very serious issues about the working of CBILS for SMEs seeking more than £50,000 support.

“They will be asking why they cannot have quick turnaround loans to get them through the crisis and whether CBILS will remain as slow and cumbersome as it has so far been.

“There are also massive challenges facing businesses for whom debt is not the answer. These issues will only become more pressing.”

Loan scheme failings

A failure to get badly-needed loans to companies is down to the UK government using the wrong mechanism to deliver it, according to a corporate finance adviser.

Chancellor Rishi Sunak’s Coronavirus Business Interruption Loan Scheme (CBILS) offering £330bn in government guarantees was broadly welcomed as Britain faced the prospect of an economy in lockdown.

But in the first month there have been only 36,000 applications and only 16,500 approvals totalling about £2.8bn. That amounts to an average loan per company of just £170,000.

This is because the Government used an existing loan guarantee scheme, the Enterprise Finance Guarantee (EFG), as the vehicle for delivering the loans, says Paul Yacoubian, managing director of Craig Corporate, arguing that it was the wrong programme.

“The EFG was designed as a loan of last resort, designed to be slow, careful, measured and subject to strict criteria and due process,” he says. “It is further complicated by complex pre-qualification rules.

In an article for Daily Business, he adds: “Most of these rules are not fully understood by the banks. For example, EFG could not be used to set up international distribution networks, particularly in the EU, as this was seen as unfair competition financed by a member state.

“This very specific exclusion has been widely misinterpreted by some banks to suggest that any company which exports is automatically excluded.

There are thousands of companies which would have applied for CBIL had the process been as simple as JRS

– Paul Yacoubian, Craig Corporate

“On the other hand, the Coronavirus Job Retention Scheme (CJRS), got off to a flying start.

“It was designed from scratch, and after a worrying few weeks waiting for the rules of the scheme and the delivery mechanism, it was successfully launched on 20 April with 185,000 companies applying on behalf of 1.3 million furloughed employees on Day one and is already 435,000 companies by the third day, representing well over three million employees).

“It is simply not credible that only 36,000 of those initial 435,000 companies need the CBIL scheme,” says Mr Yacoubian. “There are thousands of companies which would have applied for CBILS had the process been as simple as JRS.”

He says fixing this mess is not as difficult as it seems, but requires bold and speedy action.

Why the Chancellor’s loan scheme is doomed to failure – and how to fix it



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