Authorities plans everlasting state-backed small enterprise mortgage scheme

Originally written by Timothy Adler on Small Business

The government is planning to replace existing coronavirus business support with a permanent state-backed small business loan scheme.

Under the plan, which would be launched in January, the government would guarantee 80 per cent of loans to small businesses, 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.

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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).

Research by our sister title GrowthBusiness found that lenders are charging anything between 3 per cent and 15 per cent for CBILS loans.

As of last month, the CBILS and the BBLS have lent £60.64bn to struggling businesses between them.

And the new state-backed SME lending scheme would have more stringent lending criteria than the BBLS, which has been criticised for just waving through loan applications in the government’s hurry to support businesses.

Controversially, the replacement state-backed SME lending scheme would reintroduce some element of personal guarantee for borrowers, which means they could lose their house or other assets if they do not keep up repayments. Banks were slammed for insisting on personal guarantees when the CBILS was first introduced in March.

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The state-backed small business loan scheme is also expected to 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.”

Further reading

A guide to getting a business loan during Covid-19 

Government plans permanent state-backed small business loan scheme

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