Evolved business loans scheme could avoid funding cliff-edge

Successor to Government business loans looked at as businesses fear a sudden end to support schemes

Plans for a successor to the Government’s business loans relief are being looked at by officials and lenders, with a scheme under discussion designed to prevent a funding cliff-edge.

The Treasury is reluctant to extend the loan guarantee schemes as they wind down over the coming months, but policymakers are looking at options to keep credit flowing to firms, according to sources close to the talks.

An evolved scheme would seek to avoid a sudden stop to the support with a refined version of the Enterprise Finance Guarantee being mulled, banking sources said.

The British Business Bank-administered Coronavirus Business Interruption Loan Scheme provides an 80pc guarantee on loans granted to firms, but ends on Sept 30. The guarantee means the bulk of losses are borne by the taxpayer if the business cannot repay the debt, helping stimulate bank lending.

However, there are fears the state-backed loans will be needed for longer ahead of a tough autumn for the economy as the furlough scheme winds down and the Brexit transition period ends.

“They are definitely thinking about it as one of the options,” a banking source said on the plans for the scheme dubbed “EFG plus” by industry insiders.

“You should be taking the best components of CBILS and the Bounce Back Loan Scheme and putting it into the EFG scheme to make it a bit better.”

An evolved scheme could reduce the exposure of the support to taxpayers by lowering the guarantee offered and scrapping the Business Interruption Payment covering interest costs for the first 12 months, sources said.

“It is still a guarantee scheme but for the medium or long term, something that can cope with coronavirus and Brexit without these businesses interruption payments,” a source said.

“The taxpayer is less on the hook but they are still present. You are going back to EFG, but EFG is better after the CBILS experience.”

Businesses have been lent more than £50bn through the state-backed loan schemes. Some £14bn has been handed out under CBILS while the bulk has been given under BBLS, which offers a 100pc guarantee.

BBLS will end later than CBILS on Nov 4, while a scheme for larger businesses will wrap up on Oct 20. While CBILS ends on Sept 30, lenders will have an additional two months to process applications already made.

Demand for the state-backed loans has eased in recent months but experts have warned that the pressure could mount on businesses over the coming months.

Firms face a support cliff-edge as a number of government schemes wind down. The end of the furlough scheme in October is expected to lead to a wave of redundancies that could hamper the economy’s recovery. However, there are rising worries about the cost of the support.

A Treasury spokesman said: “We’ve backed businesses from the start of the outbreak – paying billions in government-backed loans and grants, protecting jobs by paying workers’ wages and deferring billions of pounds in tax.

“But we’ve been clear these schemes are temporary and it would not be 
 sustainable for them to continue indefinitely.”

They added that the Treasury keeps “all support schemes under review”.