Amid growing concerns over the fragility of Britain’s economic recovery and with job losses increasing across the country, industry sources said an announcement would be made as early as Tuesday. The development was first reported by the Financial Times.
Almost £ 53 billion in government guaranteed loans have been loaned to businesses since March. However, three of the programs, which offer 80 percent Treasury support on loans from commercial banks, were scheduled to close in early November.
All four will be extended until the end of November, the sources said, while banks will be allowed to process loans until the end of the year.
Business leaders have called for an extension amid growing fears of a difficult winter ahead for the UK economy. Despite a strong rebound in activity with the easing of foreclosure measures, the Bank of England expects the economy not to recover lost ground until the end of next year at the earliest. Serious risks also remain due to rising unemployment and increasing cases of Covid-19.
Launched as Britain was stranded in March, the coronavirus business disruption loan program has been used by more than 60,000 businesses, borrowing a total of £ 13.7 billion, with loans going up to ‘to £ 5million. Commercial banks lend money, but can recover up to 80% of the loan value from the government in the event the borrower defaults.
The big business version of the scheme has backed £ 3.5bn in loans and offers a similar guarantee, but up to £ 200m. The majority of the loans have been made under the ‘rebound’ program, with more than 1.1 million businesses borrowing over £ 35 billion in loans of up to £ 50,000.
The Treasury will also expand the future fund, which offers loans to fast-growing startups as well as matching funding from private investors. Companies can borrow up to £ 5million using loans convertible into equity investments. Almost 600 loans worth £ 588million have been approved to date.
The expansion of the schemes comes as companies may struggle to repay their debts. The Office of Fiscal Responsibility has estimated that up to 40% of rebound loans could default.
Earlier this month, center-right think tank Onward, which has close ties to the Treasury, said crippling debt levels accumulated during the crisis would hamper the UK’s economic recovery as businesses would hesitate to invest and hire workers facing massive debt repayments.
He said a debt relief program should be used to allow companies to gradually repay state-guaranteed loans taken out during the crisis through a surtax on profits and shareholder payments. It would depend on the income levels of the business, such as the student loan system for tuition.
Former Chancellor George Osborne also called on Sunak to write off debts contracted by companies under government-backed projects.