In its latest move, the British government sets to roll out a new scheme whereby it pledges to underwrite micro loans up to £50,000 for small business owners who have been unable to take advantage of the Government's Coronavirus Business Interruption Loan Scheme (CBILS). This facility comes in addition to the Furloughing scheme that the government had announced last month whereby businesses could put up to 80 per cent of their employees’ cost under the benefit of the state-backed scheme with a cap of £2,500 per month per employee cost.
This new loan scheme which has been named “Bounce Back Loan Scheme” is to be 100 per cent state-backed and set to open on next Monday, 4 May 2020. Under this new scheme, businesses will have the facility to apply online and borrow an amount between £2000 and £50,000 as an interest-free loan for the first 12 months, subsequent to which interests would be payable by the businesses.
UK Finance Minister Rishi Sunak while making the announcement in the House of Commons stated that this new fast-tracked scheme would further strength the schemes that have already been announced by the government over the past two months in order to support businesses amid coronavirus crisis.
The new credit facility that is being contemplated is in response to the criticism of the previously announced government schemes that had placed larger businesses at the core of the financial benefits. There were several small businesses who were unable to take advantage because of the stringent eligibility norms and subsequent rejection from banks on approving their loans. While making the announcement in the lower house of the British parliament, the Chancellor further stated that the smaller businesses of the country are the backbone of its economy that plays a crucial role in employment generation and the development of the communities, altogether.
This ‘Bounce Back Loan Scheme’ has been designed to disperse loans at an accelerated pace compared to the Government's Coronavirus Business Interruption Loan Scheme (CBILS). Chancellor Sunak also informed the house that in addition to making the process of application for these loans online and as simple as possible, he is constantly meeting representatives of the industry bodies and unions to understand their problems, seeking resolutions on a real-time basis. Last week, the Chancellor had already informed that he is considering a 100 per cent state-guaranteed small business loan scheme of up to £25,000, but now when the final announcement came the upper limit had been increased to £50,000.
When the Coronavirus Business Interruption Loan Scheme (CBILS) was announced last month, it was seen as a major boost in government’s efforts to provide support to the large and medium businesses in the country to deal with the pandemic-induced business slowdown. The scheme entailed that the Bank of England would guarantee loans taken by companies in the country up to a total of £350 billion. These financial facilities are meant for the businesses to pay for salaries and other important expenditures as the businesses are trying their best to navigate through the crisis and stay afloat. However, it had been soon realised that there were several problems in the implementation of the scheme. The businesses claimed that the banks have been taking a long time in scrutinising the applications, approving the loans, and on many occasions, have started to refuse applications even when the businesses need cash on the urgent basis. The slow banking process moved the government to launch further schemes, also prohibiting banks from asking for personal guarantee from businesses.
The coronavirus pandemic has caused unsurmountable economic losses in the United Kingdom. Ever since it first appeared in China, it has impacted the margins of British companies having direct dealing with China in a big way. Second, it has severely impacted the British airline industries where as of today, all aeroplanes in the country are grounded except for the military ones and one flying on humanitarian missions. When the pandemic started to expand its foothold in the country, the government soon realised it enormity and imposed a nationwide lockdown until the spread of the virus in the country gets flattened. This lockdown conditions brought the country to a virtual standstill. When people were forced to be locked-up in their houses, shops, factories, malls and other business establishment were forced to go into a temporary closure, thereby causing massive losses to them.
Several estimates have been released by the government and non-governmental organisations tasked with monitoring the health of the British economy. The Office for Budget Responsibility (OBR) has estimated that the British economy would shrink by as much as 35 per cent in the quarter April to June this year and for the full year it would be down by as much as 13 per cent. Similarly, it also estimated that unemployment during the period is expected to increase by about 2 million, which is nearly 10 per cent of the countries current workforce. The IMF in its report published in mid-April has also estimated that the pandemic-induced economic recession that the United Kingdom would witness is going to be unprecedented and even worse than the crisis experienced in World War II.
The schemes announced by the British government mainly revolve around the centre of one core purpose that is protection of jobs and protection of businesses. The government has been taking unprecedented measures to help households and businesses and also remains committed to do ‘whatever it takes’ to support the country’s economy.
On 16 April 2020, the UK government extended the lockdown for at least three more weeks that takes the nationwide lockdown to May 7. It is considered that sooner the spread of the pandemic is contained, the sooner the lockdown conditions would be lifted from the country, giving hopes of economic revival.
The latest move made by the Chancellor has arrived at the much-needed time, allowing smaller businesses to receive the financial backbone from the government during this unprecedented economic turmoil. It would not only allow the companies to sail through the turbulent times, but would also help the economy to revive at a rapid pace.