The chancellor is preparing to unveil an overhaul of his emergency aid scheme for SMEs amid warnings about a deluge of insolvencies as companies struggle to access funds from a banking system creaking under the COVID-19 crisis.
It is understood that Rishi Sunak will announce in the coming days that a key feature of the Coronavirus Business Interruption Loan Scheme – the requirement for banks to first assess whether SMEs are eligible for their other lending options – will be removed.
Mr Sunak and his officials at the Treasury are understood to have been in talks with the participating lenders, which include high street giants such as Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland, on Wednesday.
An announcement is possible as soon as Friday, according to one insider.
The move will aim to speed up decision-making processes within the high street banks and channel loans more quickly, currently worth up to £5m, to an army of SMEs.
The Treasury has been sparked into action by myriad reports in the ten days since CBILS launched that business-owners are being denied loans through it or forced to use other standard SME loan products.
Under the revamped programme, any viable business with a turnover of up to £45m will be able to access the scheme, which is interest-free and fee-free for the first 12 months.
Sources pointed out that users of the programme would still be required to demonstrate that their company was viable going into the crisis, and that they have the ability to repay the loan at the end of the term.
Banks are also understood to have agreed to waive any outstanding demands for personal guarantees on loans up to £250,000 – an issue that has been a source of growing controversy in recent days, despite the fact that it was stipulated in CBILS’ terms.
Any personal guarantees taken on loans above £250,000 will be used to cover the 20% of the loan that the government is not underwriting, according to one official.
Other aspects of CBILS’ structure, including the government guarantee that covers 80% of the lenders’ exposure, are likely to remain unchanged.
Sources said the Treasury also wanted to see banks publicly agree to a modest ‘reversion rate’ – a reference to the interest rate to which loans would revert after the initial 12-month period.
Banks and social media have been deluged with complaints from SMEs about the difficulty of getting through to their lenders to discuss CBILS, and the .
Banking sources have been at pains to point out that with most bank branch networks closed and absenteeism at unprecedented levels because of the coronavirus outbreak, the industry has been working relentlessly to get the emergency loan scheme off the ground.
Further details of the revamp being planned by Mr Sunak, including how many businesses would now be considered eligible for the scheme, were unclear on Wednesday night.
It was also unclear whether the expansion of CBILS would raise EU state aid issues, although one official said they were probably manageable.
One source warned that the scheme’s administration by the British Business Bank still risked being too ponderous at a time when hundreds of thousands of SMEs have been confronted by a funding crisis.
Research published on Wednesday warned that one-fifth of UK SMEs could run out of cash within a month.
The Treasury is also under pressure to devise a funding solution for thousands of companies which are not eligible for CBILS because they have a turnover above £45m and do not possess an investment-grade credit rating.
The largest of Mr Sunak’s rescue schemes is the £330bn Covid Corporate Finance Facility, which has been set up to buy commercial paper from major companies and funnel loans back to them.
The Treasury and UK Finance, which represents the major UK banks, all declined to comment.