UK government considers permanent business loan scheme

Government officials at the Department for Business, Energy and Industrial Strategy (DBEI) are looking to provide a permanent replacement to the various lending programmes that enabled banks to lend to struggling companies during the Coronavirus pandemic.

The government has been in talks with bank executives to sound out how the new loan guarantee scheme should work, according to the Financial Times.

It would likely focus on SME businesses that would otherwise find affordable financing from their lending backs difficult to procure.

Over the past two years the government backed £77bn of bank lending through various temporary schemes that guaranteed losses to banks. The largest was the bounce back loan scheme, which provided 100% guarantees for about £44bn of loans of up to £50,000 to 1.1 million small businesses.

Any upcoming loan programmes would focus upon supporting growth in UK businesses, rather than preventing firms from collapse by keeping them financially afloat, FT reports.

One banking executive, who had seen the questionnaire distributed by government officials, told the publication that the scheme would need to work alongside commercial lending, and not replace it.

A government official said no decision had been made about proceeding with a new programme, but said there was an “acceptance” that a permanent scheme would be necessary to guard against future discordance.

Prior to the pandemic, the government offered the enterprise finance guarantee (EFG) scheme, which provided the lender with a government-secured guarantee of up to 75%.

Ravi Anand, managing director at lender ThinCats, said there were “good policy reasons to have a permanent scheme including to encourage lending beyond a provider’s normal criteria, encouraging growth and potentially ESG behaviour, as well as have something which can be adapted quickly to market in times of stress”.