The government is set to launch a £3bn-a-year small business recovery loan guarantee scheme to build on Covid-19 financial support.
The £3bn business recovery loan scheme will offer a government guarantee for up to 70 per cent of the loan, according to the Financial Times.
By comparison, the £47bn bounce back loan scheme had a 100 per cent guarantee, while the Coronavirus Business Interruption Loan Scheme (CBILS) was 80 per cent covered.
>See also: Treasury small business loans could be permanent
However, unlike previous Covid-19 financial support, borrowers will have to put up personal guarantees – meaning they will be on the hook for payment defaults ahead of triggering any government backstop. This should act as a deterrent to any criminals hoping to get a quick-and-easy credit decision with no intention of repaying.
The previous bounce back loan scheme has been criticised for handing out money to small businesses with few checks, leading to peer Lord Agnew calling the whole scheme “one of the most colossal cock-ups in recent government management”.
The Department for Business, Energy and Industrial Strategy believes £4.9bn could be unrecoverable through the £47.4bn Bounce Back Loan scheme.
And unlike the bounce back loan scheme, which offered a fixed 2.5 per cent interest rate from year two, the new scheme will offer market interest rates.
Lenders are expected to offer loans of up to £2m through the new scheme.
The new £3bn recovery loan scheme is expected to be announced as early as next week and will for at least two years. T
The current recovery loan scheme, which guarantees 80 per cent of a bank loan up to £10m, ends on 30 June.
>See also: Failings revealed in Covid Recovery Loan Scheme
Over the course of the pandemic, £79.3bn worth of business loans were made through Covid-19 financial support.