Small businesses, in particular partnerships, will have been uncertain of taking on the Coronavirus Business Interruption Loans offered by accredited lenders by the British Business Bank. But, can 100% backed loans save small businesses?
Chancellor Rishi Sunak announced in the Commons yesterday that there will be a new support scheme launched to enable the smallest businesses to borrow £50,000, with a 100% guarantee underwritten by the UK Government.
These loans are proposed to follow the perks of the Coronavirus Business Interruption Loan Scheme, offered on loans of up to £250,000; meaning the new loan scheme will be interest-free for the first 12-months and no fees will be payable as they will be covered by the government. There will also be no repayment of the loan in the first 12-months.
Applications are said to be purposefully light and only minimal information will be necessary to encourage small businesses to apply and get cash in the business bank accounts as soon as possible.
It will remain crucial to review and understand the terms of the loan offered, and it is not clear if these “bounce-back” loans will benefit from a no personal guarantee requirement; which has now become a blanket benefit to previous loan schemes.
What’s different about this loan?
The new loan scheme announced is tailored to benefit small businesses by offering a full guarantee on the loan; meaning, if the borrower was to default and fail to pay, the government will pay off the loan in full.
This will make it less risky for the lender (banks) to issue and the paperwork will be easier to complete. This does not mean a borrower will not still be liable for 100% of the loan, but that the banks will be provided with additional security to seek repayment if the borrower can’t.
Lenders will also be able to offer these loans to small businesses that have little to no security to offer on the loan (such as assets of equivalent value). Making the loan scheme more accessible to smaller businesses.
The government is proposed to also be negotiating a reduced interest rate on the loan after the interest-free period.
When will they become available?
These loans for micro-businesses are to become available for application on Monday 4th May 2020. Although, lenders are likely to take longer processing applications with hundreds-of-thousands of applications forecast.
The applications will be short-form certifying the businesses is eligible and the loans should be paid out within 24hrs.
Where will they become available?
The scheme is anticipated to become available via existing accredited lenders by the British Business Bank, but precise details haven’t announced.