Financial Affairs

Sunak to unveil new emergency programs for business loans and elimination

Chancellor Rishi Sunak will use the budget next week to reveal a new UK state-guaranteed loan program as ministers turn off the taps on emergency coronavirus programs that have so far allowed businesses to borrow 73 billion pounds sterling.

the three existing regimes will become the first main stream of the Pandemic Support Program to be drawn for new applicants by Sunak. Businesses will have until the end of March to apply for loans under these programs, including the very popular bounce loans.

But Sunak will also use the budget to extend a set of other Covid-19 support measures for businesses until June, including trade rates and VAT relief, the employment support program in leave and stamp duty leave.

The Treasury will replace the loan programs with a new program with stricter criteria as it seeks to wean businesses off state support and return the economy to a more normal, post-pandemic basis, people briefed on the pandemic say. plan.

“The loans are much closer to normal terms,” ​​said a person familiar with the matter. “It’s about supporting the recovery now rather than saving companies from failure.” The Treasury declined to comment.

The new program will launch in early April, according to people familiar with the situation, leaving banks only a few weeks to prepare their systems.


Interest rate cap on the new loan program, well above 2.5% available on rebound loans

It is expected to offer loans of up to £ 10million with an 80% government guarantee, while interest rates will be capped at around 15%. These rates are significantly higher than the 2.5% available on bounce loans, for example, which also come with an interest-free offer in the first year.

The original coronavirus loan programs were launched in the spring of last year during the first lockdown as ministers rushed to provide funds to cash-strapped businesses.

Since then, the program has supported nearly £ 73 billion of bank loans to 1.6 million small businesses. According to data released Thursday, 1.5 million businesses have borrowed a total of £ 45.6 billion under the Bounce Loan scheme, which offers up to £ 50,000 with a full guarantee of l ‘State.

In addition, more than 92,000 businesses have borrowed £ 22bn under the Business Interruption Loan program, while nearly £ 5.3bn has been loaned to 700 businesses under the scheme. loans for business interruption.

The decision to offer a replacement program in next week’s budget reflects the government’s concern that many businesses may still struggle to access standard bank loans even when the worst of the pandemic has passed.

Still, ministers are determined to impose tougher conditions on the new program amid concerns that the generous rebound loan program in particular has been targeted by a large number of fraudulent claims.

The National Audit Office, Parliament’s spending oversight body, warned taxpayers suffer losses of up to £ 26 billion due to fraud and corporate failures under the Small Business Program.

Officials said the government is also keen to terminate existing programs over fears that they will distort the commercial lending market.

The new program is expected to allow banks to demand personal guarantees on larger loans, a requirement that was removed from emergency programs after its launch last year after criticism that small business owners could lose their business. housing at the height of the crisis.

Sunak is seeking to bring back personal guarantees, similar to those used in the coronavirus business interruption loan program, which would apply to anyone seeking to borrow more than £ 250,000. The threshold should ensure that small business owners are not exposed to personal risk.

Earlier this month, the government announced its intention to help borrowers in difficulty repay their loans as part of the existing rebound mechanism by extending the repayment period from six to ten years.