New state-backed SME loan scheme

The UK government is planning to replace existing the £65bn Covid loans programme with a permanent state-backed SME loan scheme. The new scheme will support lending by banks to a broad range of small to medium-sized business.

Under the plans, the government would guarantee 80 per cent of loans to small businesses. The business could get loans ranging from a few thousand pounds up to £10m per company over a six-year lending period. In effect, the new state-backed SME loan scheme would extend the Coronavirus Business Interruption Loan Scheme (CBILS) but with a lower threshold. The minimum CBILS loan is £10,000.

According to the Financial Times:

The banks would set their own interest rate for their loans, but the rate is likely to be capped at about 15 per cent just like the CBILS. Which is far higher than the 2.5 per cent fixed interest rate of the parallel Bounce Back Loans Scheme (BBLS).

Last month, the CBILS and the BBLS have lent £60.64bn to struggling businesses between them. And the new state-backed SME loan scheme would have more stringent lending criteria than the BBLS. BBLS has faced criticism for just waving through loan applications in the government’s hurry to support businesses.

The new state-backed SME lending scheme would reintroduce some element of personal guarantee for borrowers. That means the borrowers could lose their house or other assets if they do not keep up repayments. In the past, the banks insisted on personal guarantees when the government first introduced CBILS in March.

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The state-backed small business loan scheme will also support revolving facilities, such as overdrafts, and asset finance facilities.

Douglas Grant, director of CBILS lender Conister, said:

“We fully support the UK government’s plans to launch a permanent replacement for the £65bn Covid loans programme to support SMEs … This more permanent financial support from the government will be welcome news to those resilient SMEs that have already shown extraordinary levels of adaptability and strength in the face of changing consumer behaviour.”

The Treasury confirmed that the new scheme will roll out from January next year.

“Our loan schemes have provided a lifeline to thousands of businesses across the UK — helping them survive this crisis and protecting millions of jobs,” it said. “We are working on a new, successor loan scheme and will provide more details in due course.”

Treasury is still working on finalizing the terms of the scheme. There’s also a possibility that theTreasury could extend existing loan schemes again to ensure businesses’ access to finance after the UK leaves the EU single market.

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