Emergency loans overhaul set to ban onerous terms and improve access for SMEs

An overhaul of the Chancellor’s emergency coronavirus loans scheme for small firms is expected to be announced on Friday after widespread criticism it is failing to support hard-hit businesses.

Rishi Sunak is understood to be planning changes that will ban onerous terms and conditions being imposed by banks, and relax other rules to help make the scheme more accessible.

It comes after research on Wednesday warned that nearly a million small firms could run out of cash within the next four weeks despite the Government’s emergency loans scheme.

Business owners have the foresight to know that loading debt into a distressed business will not help longer than perhaps the next few months

A report by The Corporate Finance Network of accountants predicted that almost a fifth (18%) of Britain’s five million small businesses would not be able to survive the next month.

The coronavirus loans scheme was designed to offer companies up to £5 million interest-free for the first year to help shore up their businesses.

The Government pledged to underwrite 80% of the risk of the bank loans as an incentive for banks to lend to firms in difficulty.

But swathes of small firms have been complaining the scheme is hard to access and that it is not a level playing field, with some banks using unfair lending tactics.

Banks have come under heavy fire for demanding personal guarantees from business owners that could see their assets being seized, while others have sought to apply high interest rates once the interest rate-free initial period ends.

There are also concerns that lenders have been pushing their own financial products before the emergency loans.

Business Secretary Alok Sharma signalled late on Wednesday that the Government would be making changes to the coronavirus loan support scheme in the coming days.

He warned it would be “completely unacceptable” if banks denied funds to good businesses struggling because of the coronavirus epidemic.

It is thought Mr Sunak will prevent all banks from imposing personal guarantees on business owners for loans under £250,000 – something some of the major players have announced already since coming under pressure.

For loans over £250,000, it is expected guarantees will be limited to no more than 20% of outstanding debt.

The Chancellor will also look to make it easier for firms to access these loans by scrapping a requirement that they have to prove they have no other means of funding.

And he is set to take to task lenders who try and charge sky-high rates a year down the line.

The Corporate Finance Network welcomed the expected easing of restrictions on the loan scheme, but said taking on extra debt was not right for many firms.

Kirsty McGregor, founder of The Corporate Finance Network, said: “Business owners have the foresight to know that loading debt into a distressed business will not help longer than perhaps the next few months.”

Milan Pandya, a partner at advisory and tax firm Blick Rothenberg, added that big lenders needed to follow the lead of challenger banks, who had stepped into the void to help firms.

He said: “Their rates may be higher, but they have got their acts together and are providing money right now.

“If they can do it, why can’t the banks?”