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Following criticism that the current coronavirus support schemes have been too slow in getting the funds to businesses, Chancellor Rishi Sunak has announced new state-backed loans to combat the effects of the coronavirus. Dubbed the ‘microloan scheme’ or ‘Bounce Back Loan’, the new scheme will grant small businesses essential funds.
What was wrong with the current scheme?
While the government already has several schemes in place to support businesses through the pandemic, they have faced criticism from those attempting to apply for funding.
The Coronavirus Business Interruption Loan Scheme (CBILS), wherein small and medium enterprises can access finance options through accredited lenders, has faced criticism. Banks have been accused of adding interest that would make the loans unsuitable and pursuing a vetting process as if normal circumstances applied, meaning certain viable firms can’t access the funds they need to survive.
The scheme has also received criticism of being too slow to issue funds, worsening some business’ situations. Some have also found the eligibility criteria confusing.
What’s different about the new state-backed loans?
Starting from 4th May 2020, small businesses can access loans of up to £50,000, which will be delivered within days of applying. The application process is reported to be simpler too; an online self-certification form without the credit checks of CBILS. The loans will be underwritten by the government, meaning that banks won’t risk losing money, and the business will pay no capital or interest for the first 12 months; with the government paying the first year’s interest.
Speaking to BBC News, the chancellor said:
“It’ll be much easier for a business to tick the boxes, and if they’re eligible, which the vast majority of them will be, get their cash very quickly.”
The Coronavirus Business Interruption Loan Scheme (CBILS) has been criticised as too slow to issue funds to struggling businesses. Banks’ handling of the scheme has also come under scrutiny. In response, Chancellor Rishi Sunak has announced a new ‘microloan scheme’ of 100% state-backed loans to help firms with coronavirus-related debt. Small businesses can borrow up to £50,000, and the loans will be underwritten by the government, meaning businesses won’t need to pay any interest for the first year.