Rishi Sunak will announce an overhaul of the government’s coronavirus small business loans scheme on Friday (April 3) in response to mounting anger.
The government will remove the requirement for small businesses to show that they have no other means of funding before accessing the Coronavirus Business Interruption Loan Scheme (CBILS).
Firms trying to use the coronavirus small business loans scheme say banks have been demanding personal guarantees and quoting double-digit interest rates, driving applicants towards standard business loans.
Small business owners told MailOnline that they are being offered interest rates for between seven and 30 per cent on CBILS emergency loans – despite current UK base rate being 0.1 per cent.
Higher interest rate
Denice Purdie of Kinross-based Kapital Residential told Small Business that Bank of Scotland was advising her to apply for a conventional bank loan at a much higher interest rate. “This is not guaranteed and will take too long,” she said.
Sky News reports that Mr Sunak and his Treasury officials have been in talks with participating lenders, which include the high-street banks.
Although all the big banks have stated that they will not force small business borrowers using the CBILS to put up personal guarantees or use their private homes as collateral, the Treasury wants all accredited lenders to follow suit.
And Sunak will reportedly announce that for loans over £250,000, personal guarantees will be limited to no more than 20 per cent of the outstanding debt.
Businesses applying for the coronavirus small business loans, however, will still have to show they were “creditworthy” before the crisis to ensure the government does not prop up failing businesses.
The chancellor announced the scheme last month in which the state underwrites 80 per cent of the risk of bank loans of up to £5 million.
According to accountancy group Corporate Finance Network, nearly 1m small businesses are on the verge of collapse within four weeks because they cannot access the coronavirus small business loans.
Speaking during the daily coronavirus Downing Street press briefing yesterday, business secretary Alok Sharma warned that banks’ current behaviour was “unacceptable”.
Mr Sharma warned lenders to remember the support taxpayers gave them during the 2008 financial crisis.
Richard Churchill, a partner at tax and advisory firm Blick Rothenberg, told the Daily Telegraph some lenders were offering coronavirus small business loans at interest up to four times higher than commercial rates – and telling them they will have to wait 45 days for the money.
Meanwhile, half of UK companies are planning to furlough many of their staff because of coronavirus.
Forty-four per cent of companies surveyed by the British Chambers of Commerce say that almost half their staff would be paid through the Coronavirus Job Retention Scheme. One-third said that were planning to furlough more than 75 per cent of their workforce over the next week. And one fifth of businesses have already closed down temporarily, the BBC survey found – mirroring another survey this week by Be the Business.
A separate survey by the CIPD, the body for HR professionals, has found that more than half of employers expect to furlough staff using the Coronavirus Job Retention Scheme. A quarter said they expect to cut jobs, with one in 10 expecting to lose up to half of their staff permanently.