Bounce back scheme for small businesses welcomed as approved loans hit £4.1 billion

Business leaders have welcomed government action that should make it easier for small firms to access the much-vaunted Coronavirus Business Intervention Loans Scheme.

Changes to the rules were announced on Monday by the chancellor of the exchequer Rishi Sunak (pictured). And earlier today (Thursday) the government announced that £4.1 billion had been lent to small businesses under the loans scheme.

More than 50,000 applications had been received, and just over half approved by 52 accredited lenders.

The government was forced to speed up the process after business organisations reported that businesses were being turned down for loans, or being put off from applying because they did not think they would be successful.

From Monday, small businesses will be able to apply for new ‘bounce back’ government loans for 25 percent of their turnover up to a maximum of £50,000.

The microloans come with a 100 percent government guarantee to lenders – up from the previous 80 percent – and the government pay the interest for the first twelve months.

Forward-looking tests of business viability have also been dropped.

Phil Smith, managing director of Business West, which runs the Swindon and Wiltshire Initiative, said many of the thousand-plus companies that had responded to his organisation’s Trading Through Coronavirus survey had reported problems in accessing loans.

“The news will be very welcome by small business so worried about the delays experienced by many of them in applying for cash through the government’s much-heralded Coronavirus Business Intervention Loans Scheme or CBILS,” he said.

“The UK government and financial institutions should simplify and standardise the CBILS application processes to unlock access for more businesses of all sizes.

“Serious consideration must also be given to the expansion of grant schemes for firms unwilling to take on more debt repayments.”

The Federation of Small Businesses, which has been campaigning hard for amendments to the rules, welcomed the new measures.

National chairman Mike Cherry said: “Less than half of applications have been processed, and we know that even getting to the application stage can be a nightmare.

“The new bounce back scheme offers real hope in this space. We’re several weeks into the lockdown – with many business owners having to pay wages, utility bills and rent with no revenue coming in – so its launch can’t come soon enough.

“It must be live from 9am on Monday as promised – with money in accounts by the end of next week at the latest. Those that have been refused a CBILS facility should be written to with the offer to apply for a bounce back loan, and those mid-way through a CBILS application given the option to change tack.

“It’s critical that business owners have access to a streamline bounce back application process through any bank where they hold a consumer or corporate account.”

And Rain Newton-Smith, chief economist at the Confederation of British Industry said: “For smaller firms, the 100 percent guaranteed loan should help give sole traders, micro firms and entrepreneurs a simple route to fast finance to help them stay afloat from next week.

“The financial strain on businesses cannot be underestimated though and with more businesses applying for loans the banks must continue to be responsive to concerns and work at full speed to deliver the scale of support needed.”

 Locally, the move was welcomed by Swindon-based accountants MHA Monahans. Partner 

Dominic Bourquin said: “This is welcome support for the smallest businesses, who have found it difficult to access funding under the larger schemes, and if the government’s announcement is to be believed means funds should be accessible quickly.

“However, we would sound a couple of notes of caution, firstly around the ability of the banks to quickly process these and other funding support applications, so if you want this sort of loan apply early as it may take some time to be accepted, due to resource problems in the banks and secondly, beware the interest rate that will apply at the end of the 12-month interest-free period – this is not subject to any cap, so it may prove to be a very expensive source of funding.”

And a note of caution was sounded by 

Melksham-based Old Mill, with director Mark Neath saying that says that if a business is unable to service a loan, it is wrong for the business to borrow.

“More government support will obviously be welcomed by businesses but the fact that we are even having the debate about the guarantee level demonstrates that loans in some cases are not the right tool for the job,” he said.

“If a bank has assessed a business proposition and concluded that affordability is not sufficient to repay the loan, then the bank should not lend, and it would be the wrong thing for the business to borrow.

“Now the Treasury is going to provide a 100 percent default guarantee for certain loans doesn’t alter the underlying facts that the business looks unable to service the loan and that borrowing would be the wrong thing.

“Even the Chancellor appears to acknowledge that loans are going to be made with little prospect of them being repaid.

“If that happened, such that the Government guarantee was more likely than not going to be called upon, then it begs the question why not simply give a grant and spare the banks and business owners a lot of work and ultimately stress and pain to end up at the same place?

“The media narrative I keep reading day after day is that banks’ lending criteria are denying loans to businesses.

“Perhaps the story ought to read: banks’ lending criteria protect businesses from inappropriate borrowing, what is the Government going to offer instead? I fail to see how 100 percent guarantee is the answer.”