A government-backed loan scheme to help Britain’s small businesses survive the coronavirus lockdown comes into effect on Monday (4), allowing firms such as hairdressing salons, coffee shops and florists to receive emergency cash.
Chancellor Rishi Sunak announced the new facility on April 27, bowing to pressure to do more for the smallest companies after a previous scheme got off to a slow start.
The new “Bounce Back Loans” allow businesses including sole traders to borrow between £2,000 and £50,000 at a flat interest rate of 2.5 per cent. Banks handling the loans will not be required to run credit checks or assess the long-term viability of applicants.
“Small businesses will play a key role creating jobs and securing economic growth as we recover from the coronavirus pandemic,” Sunak said in a statement to mark the first day when the Bounce Back scheme goes into operation.
“The Bounce Back loan scheme will make sure they get the finance they need – helping them bounce back and protect jobs,” he said.
Most British businesses have been shut to the public since March 23, when the government imposed social distancing measures to slow the spread of the virus. Government forecasters have said the economy could contract by 35 per cent in the second quarter.
Britain last month announced an emergency £330-billion credit scheme including loans of up to £5 million for small and medium-sized companies, with state guarantees of 80 per cent.
But many companies said they struggled to secure bank approvals, putting pressure on Sunak to provide full state guarantees for commercial loans to the smallest businesses.
From Monday, any firm that has already taken out a loan of £50,000 pounds or less under the 80 per cent state-backed scheme can apply to have it switched over to the Bounce Back scheme.
Industry leaders have called for an extension of the government’s job retention scheme.
Under the furloughing plan, the government had announced to cover 80 per cent of the wages of workers forced to stay off work due to the pandemic, up to a £2,500-a-month salary ceiling.
Reports said nearly 140,000 companies furloughed about four million employees under the scheme set to end in June.
The Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) noted that a sudden withdrawal of the subsidy could lead to unemployment rates as bad as the 1930s.
“There is an estimated 27 per cent of the entire workforce on furlough, with more than 80 per cent of workers in the hospitality sector affected,” said the RSA’s Future of Work Centre chief Alan Lockey.
“If those people were made redundant the level of unemployment would rocket to levels not seen since the Great Depression.”
The chief economist at the Institute of Directors, Tej Parikh said rebooting the economy “won’t be like flicking a switch”.
“Even if lockdown measures were completely lifted, many firms wouldn’t expect demand to lift to normal levels immediately,” he added.
“A sharp removal of the furlough scheme at the end of June could cause significant problems for some businesses, so the government should explore how it could taper off the system in a flexible way.”
Last week, the chancellor had hinted that he was considering an extension of the scheme to July.
“I am determined to make sure as many people as possible return to work after this crisis,” said Sunak during a parliamentary economy briefing.
“I want to make sure that as we emerge from this crisis, we can bounce back to the lives we once knew.”