It has been reported that UK government officials are in serious talks with British bank executives to provide a permanent replacement for the various Covid loan schemes that allowed banks to lend to struggling businesses during the pandemic.
There has been much anticipation concerning how the new loan guarantee scheme could look. It is expected to focus on small to medium-sized businesses that would otherwise struggle to find financing at affordable terms from their terms. As such, the focus would be to support and promote growth amongst these UK businesses.
According to government estimates, the government has backed around £77 billion of bank lending since the schemes commenced in March 2020.
Managing Director of the lender firm ThinCats, Ravi Anand said that the recent years that provided the government with “good policy reasons to have a permanent scheme, including to encourage lending beyond a provider’s normal criteria, encouraging growth and potentially ESG behaviour, as well as have something which can be adapted quickly to market in times of stress”.
Amongst the government-supported schemes, the ‘Bounce Back’ loan scheme was the largest – providing 100 per cent guarantees for loans of up to £50,000. This scheme was designed to provide funds to struggling UK businesses as timely as possible, requiring only light and speedy checks on borrowers. Richard Allan of Capital Bean commented: “The covid loan schemes were hugely helpful to various UK companies during the pandemic, but measures should certainly be put into place to reduce potential fraud and reduce
Further programmes introduced by the government include the Coronavirus Business Interruption loan scheme, which provided larger loans for bigger businesses with a lower percentage guarantee. This has since been replaced with the Recovery Loan scheme, which now guarantees four-fifths of a bank loan up to £10 million. This scheme is due to end at the end of June this year.
While there have been no formal decisions made in government concerning the introduction of any new schemes, there has certainly been an acceptance among government officials that a permanent scheme will be essential in the face of any future disruptive events. Any formal decisions would have to be signed off by the Treasury Ministers.
Prior to the pandemic, the government offered UK businesses a similar scheme known as the Enterprise Finance Guarantee. This scheme provided lenders with a government-backed guarantee of up to 75 per cent.