Pressure intensifies for 100% government-backed business loans

The pressure on the Chancellor to offer 100% government-backed loans to prevent thousands of businesses from going out of business is working.

Banks and other commercial lenders, which must currently cover 20% of loan losses under the government scheme, have been turning down requests to borrow rescue funds that could allow firms to remain solvent through the coronavirus lockdown.

It is no secret that Treasury mandarins have been waging a very effective rear-guard action – in scenes reminiscent of ‘Yes Minister’ – to prevent the underwriting of all loans to small businesses, fearing the system will be abused.

The Chancellor has even resorted to bringing in his chums from Goldman Sachs and hedge-funds to bolster his troops who have, so far, been largely impotent against the massed ranks of civil servants.

They claim, however, that they are discussing with business groups how to improve the loans system following criticism that banks have applied strict lending criteria, preventing firms from accessing loans.

Adam Marshall, director general of the British Chambers of Commerce, said it was a matter of urgency that the Treasury simplify the system to allow more businesses to access the one-year, interest-free loans.

Carolyn Fairbairn, director general of the CBI, said on Friday that ministers needed to offer 100% government-backed loans to “prevent thousands of businesses going to the wall”. It would be “an important part of the mix” of loans and grants on offer to rescue firms, she said.

Even the Bank of England governor, Andrew Bailey has got in on the act suggesting that a government guarantee for loans under £25,000 might be the only way to circumvent standard bank credit checks. “Is there a case [for 100% guarantees] for very small firms that account for quite a high volume of applications? Would it unblock things to change the risk appetite for those firms?” he asked.

Last week Shadow Business Secretary, Ed Miliband recommended that the Treasury examine the Swiss model, which is based on a single government form that is used by all lenders, and is backed by a 100% government guarantee. He was joined by former chancellors George Osborne, Norman Lamont and Sajid Javid, who have called on the Chancellor to “cut out the banks” and move to 100% government-backed business loans.

Miliband said:  “Banks must ask whether borrowers can afford to repay the loans, which can be made over a six-year period, but it is almost impossible for many companies to answer the question when the current crisis means there is so much uncertainty.

The case for 100% underwriting by the government is now unanswerable. Support for it is cross-party and echoed by business groups and the Bank of England.

The fate of many businesses lie in the decisions the Chancellor makes over the coming days. He needs to act now, or businesses will begin to go to the wall in increasing numbers.”

If loans under £25,000 were guaranteed in full this would alleviate huge pressure on the system; please keep up the pressure on government and your MP to make this happen.

Noel Guilford, Principal at Guilford Accounting
Noel Guilford is the principal of Guilford Accounting a small business accountancy practice specialising in advising owner-managed businesses on current accounting, finance, and tax matters. You can reach him via email at noel@guilfordaccounting.co.uk or by phone at 01244 660866. He is the author of the 'Figure it out - an entrepreneurs guide to understanding your business numbers' which you can obtain by visiting guilfordaccounting.co.uk.​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ His latest book, How to Build a Successful Business' will be published in 2018.

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