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The chancellor, Rishi Sunak, has banned banks from asking for personal guarantees on emergency loans to small businesses as the government has increased concern that lenders are slow to meet calls for help.
With the rapid increase in the number of universal credit claims With Sunak suggesting that many small businesses have already collapsed since the economy was shut down, Sunak combined a new support package for businesses with a warning to banks that they need to act faster.
Sunak announced his £ 330bn Coronavirus Business Interruption Loan Program (CBILS) – where the government provides loans to companies – a little over two weeks ago, but now has to admit that the support is not arriving fast enough and does not reach all the companies that need it.
As part of the revised plan, the Chancellor said:
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Lenders would be prohibited from asking for personal guarantees – which means borrowers often have to put their homes on the line – for loans under £ 250,000.
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The loan program would be expanded to cover all small businesses affected by Covid-19, not just those that do not receive commercial funding.
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There would be a new program to step up support for larger businesses currently ineligible for credit, with the government providing an 80% guarantee to allow banks to lend up to £ 25m to businesses with a Annual sales between £ 45 million and £ 500 million.
The Treasury Department said the Chancellor would speak to the banks’ chief executives next week to discuss how the programs work and “make sure everyone is doing their part”.
Sunak, the Governor of the Bank of England, Andrew Bailey, and the Interim Chief of the Financial Conduct Authority, Christopher Woolard, said British bank chiefs last month to take “all necessary steps” to ensure that government-supported loans benefit households and businesses as planned.
The Chancellor said: “This is a national effort and we will continue to work with the financial services sector to ensure that the £ 330 billion government support through loans and guarantees reaches as many businesses in need as possible”.
While the government’s official line is that great strides are being made in providing much-needed support to businesses hit hard by the shutdown of large sections of the economy, the Chancellor has listened to calls from employers’ organizations to lift the program, more broadly, less so bureaucratic and faster.
Adam Marshall, UK Chamber of Commerce Director General, said: “We are delighted that the Chancellor is listening and responding to real concerns from companies across the UK in dire need of financial assistance.”
Mike Cherry, national chairman of the Federation of Small Businesses, said, “The most immediate problem threatening the survival of millions of small businesses and the self-employed is depleted cash flow. Time is of the essence, so we welcome government action to ensure that any viable small business negatively impacted by the coronavirus can now access CBILS directly instead of being offered a bank‘s own standard commercial loan product first.
“The cancellation of personal guarantees on all commercial loans below £ 250,000 is also very welcome. Taking on debt is a daunting prospect for many small businesses and the self-employed right now. “
Sunak said that since the CBILS announcement, it has approved £ 90 million in business interruption loans for nearly 1,000 companies and provided £ 1.9 billion in corporate finance for companies affected by Covid-19.
“We are making great strides in providing much-needed support for businesses to manage their cash flows during this troubled time – with millions of dollars in loans and financing to hundreds of companies across the country,” said the Chancellor.
“And now I am taking further action by extending our generous loan program so that even more companies can benefit from it. We have also listened to the concerns of some of the larger companies affected by Covid-19 and are announcing new support so that they too can benefit. “
Gerard Lyons, Senior Fellow at the Think Tank Policy Exchange and policy advisor to Boris Johnson when he was London’s Mayor, said: “In a fast-moving environment, it should come as no surprise that policies need to move forward. Speed, scalability and simplicity are of the utmost importance in order to implement the measures taken so far. Banks, in particular, either have to be 100% involved in the process or are circumvented by the government, which grants companies grants to ensure their survival. “
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