In a letter sent to UK lenders overnight, the Treasury also confirmed that the Bounce Loan System (BBLS) would be excluded from strict consumer protection laws in order to speed up the process of transferring money to small businesses.
“As a 100% guaranteed loan program, the price of BBLS is essential to its success: together we must ensure that these loans are affordable and accessible.” As such, and incorporating a series of data, I decided that the rate should be set at 2.5%, “said Chancellor Rishi Sunak in the letter.
The Bank of England would also expand a term finance program for UK banks that offers additional incentives to offer cheap loans to small and medium-sized businesses, he added.
“As I said earlier, it is essential that all necessary measures are taken to ensure that the benefits of this program, as well as all other measures from government and regulators, are passed on to businesses,” said Sunak. .
The announcements follow lengthy discussions between the Treasury and British lenders, which are expected to continue throughout the weekend before the program’s official launch on Monday morning.
The BBLS, which Sunak announced last week, offers 100% state guaranteed loans capped at 25% of turnover. It will be the only emergency loan program to have a standard interest rate, after an initial period of 12 months without interest and without payment.
It is also the only program to offer a 100% guarantee, which means the government will cover the bank’s losses in the event of a customer default. The other plans are covered up to 80%. Companies will be able to apply via a short online form, intended to speed up the pace of approvals.
Lenders have been accused of not distributing funds quickly enough in recent weeks, with figures showing that they have approved less than 50% of the 52,807 applications for the existing coronavirus business interruption loan scheme ( CBILS).
Stephen Jones, Managing Director of UK Finance Banking Lobbying Group, said bank staff “worked incredibly hard to get money for viable businesses that needed it”, and lenders were working at a fast pace to set up the new system.
Some banks feared that the accelerated application of BBLS would lead to the need to reduce accessibility checks that would make them violate consumer credit law. The Treasury has confirmed, however, that it will introduce retrospective legislation that would allow them to skip these checks to try to get money for businesses faster.
Kevin Hollinrake, Conservative MP and co-chair of the all-party parliamentary group on fair business banking, welcomed the Treasury announcements, saying the standard interest rate was “fantastic” for small businesses. He also said the changes to consumer protection rules were reasonable.
“In the current circumstances, businessmen will have to take a risk to get out of it,” he said.