Banks have been told that they cannot charge more than 2.5% interest on a new batch of emergency coronavirus business loans will be launched on Monday as part of an effort to support companies that struggled during the pandemic.
In the letter sent to the UK lender overnight, the Treasury also confirmed that the bounce back loan scheme (BBLS) would be excluded from strict consumer protection laws to speed up the process of getting money for small businesses.
“As a 100% guaranteed loan scheme, the price of BBLS is crucial for its success: together, we need to ensure that these loans are affordable and accessible. Therefore, and entering various data, I have decided that the tariff should be set at 2.5%, “the chancellor, Rishi Sunak, said the letter.
The Bank of England will also do it extend the term funding scheme for British banks that provide additional incentives to offer cheap loans to small and medium businesses, he added.
“As I said before, it is very important that all necessary actions are taken to ensure that the benefits of this scheme, and all other actions from the government and regulators, are passed on to business,” Sunak said.
This announcement follows a lengthy discussion between Treasury and the UK lenders, which is expected to continue throughout the weekend before the scheme is officially launched on Monday morning.
BBLS, which was announced by Sunak last week, offers 100% government-supported loans with a limit of 25% of turnover. This will be the only emergency loan program that comes with a standard interest rate, after the initial 12-month interest period and free payment.
This is also the only program to come with a 100% guarantee, which means the government will bear bank losses if customers default on their loans. Other schemes cover up to 80%. Businesses will be able to register via a short online form, which is intended to expedite the approval step.
Lenders have been accused of failing to channel funds fast enough in recent weeks, with figures showing they approve less than 50% of the 52,807 applications for existing coronavirus business interruption loan (CBILS) schemes.
Stephen Jones, chief executive of the UK Finance banking lobby group, said bank staff were “working very hard to get money for businesses that need it,” and lenders are working quickly to make this new scheme work.
Some banks worry that the fast track application for BBLS will mean having to cut corners on affordability checks that will make them violate the Consumer Credit Act. However, the Ministry of Finance stressed that they would introduce retrospective laws that would allow them to pass the check to get money to business faster.
Kevin Hollinrake, a Conservative MP and co-chair of an all-party parliamentary group on fair business banking welcomed the Treasury announcement, saying that the standard interest rate was “fantastic” for small companies. He also said that changes to consumer protection rules were reasonable.
“In the current circumstances, businesses must take risks to get past this,” he said.