The government is about to launch its scheme to help small businesses access crucial loans this week after widespread criticism that it had not acted fast enough to aid companies who are struggling to survive being hit hard by the impact of coronavirus.
Small companies are rapidly running out of cash as society shuts down in response to the pandemic, are getting a frosty response from Banks and other lenders, even getting demands for bank fees and unauthorised overdraft fees, ahead of the scheme’s launch.
Small businesses run by budding entrepreneurs who are desperate for immediate help from banks are not getting them. Rishi Sunak, the Chancellor’s “£330bn of guarantees” rescue package, designed to offer commercial paper to large companies.
Today, Sunak will provide further details of the scheme to encourage banks to provide loan facilities of up to £5tn for smaller businesses experiencing increased costs or disruptions to cash flow due to the crisis.
The borrower remains liable for the loan, which has caused criticism from business owners who are reluctant to add to their long-term debt burden.
“Banks have lengthy due-diligence processes and credit committees to please and ultimately need to see that the loan will be repaid, with interest at a time where the real need is pay wages next week and stop the immediate collapse of several businesses”
Next week is critical when we all have to step up to prevent business closures and that includes UK’s banks.
Small business owners are convinced they will not be able to access the loans because the banks, many of which only received details of the scheme at the end of last week, were still using pre-crisis lending criteria to assess whether a company was creditworthy.
The scheme was designed to give a lender a guarantee on 80 per cent of the outstanding facility while the government would also cover fees and interest.
There are concerns that Bank’s small business teams have the capacity to conduct all the necessary due diligence as many small businesses face a cash crunch within days after their revenues disappeared overnight.
Some Banks however are reluctant to support the scheme as confusion had arisen because Mr. Sunak announced the package before the fine details were in place.
A business owner said the bank told him that the interest rate on his overdraft of £10, 000 would rise from 6 per cent to 25 per cent.