Loans: New emergency loans will be interest free in the first year
Banks will promise tomorrow to grant small businesses interest-free loans of up to £ 250,000 within 48 hours to survive the economic crisis.
Sources told the Mail on Sunday that Chancellor Rishi Sunak’s emergency coronavirus loans would initially take the form of overdrafts.
Business customers will be able to borrow a quarter of a million pounds from any of 40 lenders without having to secure the loan against assets such as property.
Small businesses will be able to apply for larger loans of up to £ 5million under the government’s ‘business interruption’ loan scheme, but banking sources have warned it will take longer to organize and may need to be guaranteed against the assets of the business.
Yesterday, the bosses warned that if they were to survive the crisis, they had to take on debt that could reduce their profits for years.
Sir John Timpson, chairman of Timpson Shoemakers, which has 5,500 employees, told Radio 4 Today his business would drop from £ 15million in the bank to £ 20million in the red – although that is of a “strong business”.
The new emergency loans will be interest free in the first year and the government will bear 80 percent of the debt.
Sources from several major lenders said banks have been urged to tear down security rules to get financing for struggling businesses faster.
Banks will be able to provide loans to businesses that were viable before the coronavirus outbreak, rather than asking businesses to forecast their future cash flows.
Banks were inundated with loan applications last week after Britons were urged to avoid public places, such as cafes and restaurants.
Lloyds Bank loan applications jumped 16 percent, while Co-op Bank small business loan applications rose 20 percent. The Chancellor said last Tuesday that the government would guarantee £ 330bn in loans to prevent small businesses from going bankrupt.
Hotel owner: I was offered an expensive last resort overdraft
Small business owners were offered overdrafts and expensive loans from their banks last week – even though the Chancellor had promised “interest-free” deals within days.
Christopher Morgan, owner of the Cotford Hotel in Malvern, Worcestershire, said his bank manager Lloyds offered him a 4.6% overdraft or 2.9% loan after losing three months of business from worth £ 180,000.
Dear offer: Christopher Morgan, the owner of the Cotford Hotel in Malvern
Morgan almost signed up – until her local MP Harriett Baldwin told her to wait for government help.
‘It’s a bit unscrupulous. I think they should have been more honest with us, ”he told the Defense Ministry. ‘They should have said’ We heard about this opportunity [from the Treasury], support us and give us a few more days. ‘
Lloyds said: “We are working as quickly as possible to ensure that once commercial support is available, customers can access the financing they need.”
However, bank bosses warned last night that some small business owners would be reluctant to go into deep debt.
The government also said it would give companies tax exemptions on commercial rate invoices and cover 80% of wages up to £ 2,500 per month (or £ 30,000 per year) as long as employers keep workers in the workplace. their books.
But the wage system, which will be backdated to March 1, will not begin until April, and small businesses will therefore have to find funding by then.
Paul Lynam, Managing Director of Secure Trust Bank, said: “The problem is that the vast majority of small businesses are not borrowers – probably around 70%.
“These loans won’t work for them because they don’t know how to borrow money and some of them might not want to.”
Trade bodies have also warned that many banks have failed to notify small businesses of the interest-free loans that will go live tomorrow.
Mike Cherry, President of the Federation of Small Businesses, said, “We have heard many cases of small business owners going to lenders and being greeted with little consideration. This must change, and quickly.
“Those responsible for deciding whether or not loans are granted in the next few days must recognize that in many cases they will be deciding whether a small business survives or goes bankrupt.”
Ian Rand, Managing Director of Barclays Merchant Bank, said: “We are ready next week to make sure we have all the resources to resolve this issue.”
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