Rishi Sunak announces plans to guarantee 100% of loan value for small firms

Chancellor of the Exchequer Rishi Sunak today announced that the Treasury will begin to offer 100% guarantees on loans given to small businesses up to the value of £50,000. The Government will not, however, extend the offer to all loans offered under the Coronavirus Business Interruption Loan Scheme (CBILS), citing the need to balance the needs of small businesses with the risk to the tax payer.

Luke Davis, CEO of IW Capital, an SME specialist private equity firm said:

“This is a hugely positive step in the short-term for small and micro businesses who are in desperate need of survival capital. For businesses with more than around ten employees, however, this is likely only to cover a month or two of expenditure and with no end in sight for lockdown, much more support will likely be needed. The CBILS has come under massive scrutiny both for who is guaranteeing the cash and the time it takes to process the payments.”

“This addition will undoubtedly save many businesses in dire need of funds, but it will not be a game-changer for most. This is especially true of early-stage loss making companies or those without the requisite three years trading. This is where private finance is going to be more important than ever. Investors are starting to realise that there are opportunities out there to support great businesses – sometimes at reduced cost. So, while debt may be more available than ever before, equity finance will remain a key route to saving firms from going under and, crucially, helping some to grow.”

Reece Tomlinson, CEO and Founder of RWTGrowth – financial advisers for the global SME arena – discusses the launch of these new microloans:

“These loans for 25% of a micro-businesses’ turnover could be a lifeline for some small businesses who are just starting out and, while some may not want to take on debt in such an early stage of business, it could be just what they need to survive and then later thrive. From the initial announcement, the quick turnaround, simple application and 100% government-backed nature of the loan seems very appealing, but businesses should be wary of the implications of taking on debt at such an early stage.

Despite the government paying the first 12 months of interest, businesses need to understand the repayments after the first year and how that could impact their business model moving forward. Business leaders would be wise to speak to their accountant, conduct the proper due diligence and explore other options before taking out up to £50,000. “