The UK government has announced a new emergency loans package for the “squeezed middle” of midsized companies excluded from the Treasury’s Covid-19 rescue schemes.
Chancellor Rishi Sunak last week set up government loan guarantees aimed at two groups of companies: large “investment-grade” corporations and small companies.
The first scheme, called the Covid Corporate Financing Facility, allows loans to large companies for up to 12 months by the Bank of England buying their commercial paper.
The second programme, the Coronavirus Business Interruption Loan Scheme (CBILS), is currently limited to companies with turnover under £45m — and allows them to access government-backed loans of up to £5m.
A third scheme announced on Thursday will allow companies ineligible for the two existing schemes to access state support — including, for example carmakers, leisure companies and airports.
The new initiative, called the Coronavirus Large Business Interruption Loan Scheme (CBILS), will allow companies with turnover of between £45m and £500m to borrow up to £25m, largely guaranteed by the state.
The loans will not be interest-free but should still provide a lifeline for the “squeezed middle” companies that are unable to access either of the existing bailout schemes.
Meanwhile, Mr Sunak said he would iron out one of the flaws in the existing CBILS scheme by dropping the need for viable companies to have first tried to get a normal commercial loan elsewhere. Borrowers have complained that they were being told to take high interest debt when they approached their banks to take part in the bailout programme.
The move would also mean that almost all lending to the smaller business sector would be carried out through the scheme, which could lead to high volumes of applications for the interest-free loans.
Personal guarantees for loans under £250,000 have already largely been dropped by most of the banks in the scheme after ministers intervened following complaints from borrowers that they risked the loss of their property and savings.
Meanwhile, the Treasury stipulated that personal guarantees can only be asked for the 20 per cent of the loans over £250,000 not supported by the government scheme.
The Federation of Small Businesses on Thursday said that it wanted personal guarantees removed by all 40 lenders and any new ones joining the scheme. It also pointed to concerns about the prospects of high interest charges at the end of the 12-month period of the government loans and has called for any interest rate to be limited to 6 per cent.
Mr Sunak said that £90m of loans to nearly 1,000 small companies had already been approved by CBILS since its launch last week. The larger CCFF scheme has so far provided £1.9bn of support with another £1.6bn committed.
In total, there have been over 130,000 inquiries from companies across the country for business interruption loans, according to figures from UK Finance, the industry group.
Carolyn Fairbairn, director-general of the CBI business group, said the support for mid-tier companies would help some of Britain’s most “iconic” regional employers. “These firms number in the thousands and make a huge contribution to the economy, so it’s good to see them getting the support they deserve,” she said.
