Small businesses get 100% state-backed guarantees

Economy News Whitehall

The UK government is offering government-backed rescue loans to small businesses that took a beating from the global pandemic.

The plan came after calls on the government to revamp its emergency loan scheme following denied support for thousands of cash-starved firms.

Chancellor Rishi Sunak said small businesses are guaranteed of bounce-back loans with full backing from the government while debunking claims that he was not pressured by calls for a 100% guarantee.

He said state-backed loans could be availed as early as Monday.

“I know that some small businesses are still struggling to access credit. They are in many ways the most exposed businesses to the impact of the coronavirus and find it hard to access credit in the first place,” he said.

“They will need extra support to get through this crisis,” he added.

Under the program, small businesses could apply for microloans amounting to £50,000 or 25 per cent of their turnover. The program is designed to provide small businesses with smoother access to cash facing difficulties with existing state-backed lending services.

Should borrowers fail to repay the total loan, high-street banks will be guaranteed a refund of the entire loan value, as compared with the only 80% as provided for under the government’s coronavirus business interruption loan. The plan was to help encourage banks to lend more cash to businesses given that the state will shoulder the risks.

Meanwhile, it can be recalled that Sunak ceased from providing 100% guarantee to bigger firms and likewise thumbed down calls for a 100% support to small firms, saying taxpayers should not bear the brunt of risks from company failures and that it should share with the banks the risks with taxpayers.

“I’m not persuaded that moving to a 100% guarantee is the right thing to do,” Sunak had said, adding that Britain had offered incentives to firms through other means such as tax cuts and wage subsidies.

“We should not ask those ordinary taxpayers today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses who may in some cases have very little prospect of paying those loans back and not necessarily because of the impact of the coronavirus,” he added.

Bank of England Governor Andrew Bailey had earlier expressed his backing on the increasing of state-backed guarantees, saying it would encourage bank lending and help remove bottlenecks.

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