Banks will promise tomorrow to give small businesses interest-free loans of up to £250,000 within 48 hours to help them survive the economic crisis.
Sources close to Chancellor Rishi Sunak say the emergency coronavirus loans will initially take the form of overdrafts. Business customers will be able to borrow up to a quarter of a million pounds from any of 40 lenders without having to secure the loan against assets such as property.
Under the Government’s ‘business interruption’ loans programme, SMEs will be able to apply for larger loans of up to £5million, although banking sources warned these would take longer to arrange and may need to be secured against the company’s assets.
Bosses warned yesterday that, if they are to survive the crisis, they face the potential prospect of taking on so much debt that their profits could be wiped out for years to come.
Sir John Timpson, CEO of Timpson Cobblers, which employs 5,500 staff, told BBC Radio 4 today that his firm’s financial position would go from having £15million cash in the bank to being £20million in the red. Despite being a strong business!
£330billion of loans guaranteed
The new emergency loans will be interest-free for the first year, 80% of which will be guaranteed by the Government. Sources at several major lenders said that banks had been instructed to ignore safety rules in order to provide funding more quickly to struggling businesses.
Rather than ask firms to forecast their future cash flows, banks will be able to give loans to businesses that were viable before the outbreak of the coronavirus pandemic. Banks were inundated with applications for loans last week after the public was advised to avoid places of social gathering such as pubs, clubs and restaurants.
Loan applications to the Co-op Bank by small businesses jumped by 20 per cent last week, while loan inquiries to Lloyds Bank rose by 16 per cent. On Tuesday, the Chancellor said the Government would guarantee £330billion of loans to prevent SMEs from going bust.
The Government also confirmed that it will give companies tax holidays on business rates bills and pay 80 per cent of salaries up to £2,500 per month provided that employers continue to employ staff. However, the salaries scheme, to be backdated to March 1, will only start in April, so small firms will need to secure funding until then.
SMEs averse to risk
Nevertheless, last night bank bosses warned that some small business owners would not be willing to take on a lot of debt.
Paul Lynam, CEO of Secure Trust Bank, said the main problem is that the vast majority of SMEs, probably around 70 per cent, don’t borrow money. Which means that loans won’t apply to them, either because they lack the financial nous to borrow money or may not want to.
Trade bodies have also warned that many banks have not informed SMEs of the interest-free loans coming online tomorrow. Mike Cherry, chairman of the Federation of Small Businesses said he has heard of many instances of small business owners approaching lenders and being turned away. He went on to say that this situation is completely unacceptable.
Those responsible for approving loans, he said, should realise that in many cases they’ll be deciding whether a small business lives or dies.
Ian Rand, CEO of Barclays business banking, responded by saying that his staff will be on standby from next week to ensure they have all the resources they will need to deal with this emergency.
In a similar vein, Lloyds Bank said they are working as quickly as possible to make sure that customers can access the finance they need, once the business support is available.