Interest on UK coronavirus bounce-back loans to be capped at 2.5%
Banks have been told they cannot charge more than 2.5% interest on a new batch of emergency coronavirus business loans to be launched on Monday as part of efforts to support struggling firms during the pandemic.
In a letter sent to British lenders overnight, the Treasury also confirmed that the bounce-back loan scheme (BBLS) would be excluded from stringent consumer protection laws in order to speed up the process of getting money to small businesses.
“As a 100% guaranteed loan scheme, the price of BBLS is critical to its success: together, we need to ensure that these loans are affordable and accessible. As such, and incorporating a range of data, I have come to the decision that the rate should be set at 2.5%,” the chancellor, Rishi Sunak, said in the letter.
The Bank of England would also extend a term funding scheme for UK banks that provides additional incentives to offer cheap loans to small and medium-sized businesses, he added.
“As I have previously stated, it is vital that all necessary action is taken to ensure that the benefits of this scheme, and all other measures from government and the regulators, are passed through to businesses,” Sunak said.
UK government support for workers and businesses during the coronavirus crisis
Direct cash grants for self-employed people, worth 80% of average profits, up to £2,500 a month. There are similar wage subsidies for employees.
Government to back £330bn of loans to support businesses through a Bank of England scheme for big firms. There are loans of up to £5m with no interest for six months for smaller companies.
Taxes levied on commercial premises will be abolished this year for all retailers, leisure outlets and hospitality sector firms.
Britain’s smallest 700,000 businesses eligible for cash grants of £10,000. Small retailers, leisure and hospitality firms can get bigger grants of £25,000.
Government to increase value of universal credit and tax credits by £1,000 a year, as well as widening eligibility for these benefits.
Statutory sick pay to be made available from day one, rather than day four, of absence from work, although ministers have been criticised for not increasing the level of sick pay above £94.25 a week. Small firms can claim for state refunds on sick pay bills.
Local authorities to get a £500m hardship fund to provide people with council tax payment relief.
Mortgage and rental holidays available for up to three months.
The announcements follow lengthy discussions between the Treasury and UK lenders, which are expected to continue throughout the weekend before the scheme is formally launched on Monday morning.
The BBLS, which Sunak announced last week, offers 100% government-backed loans capped at 25% of turnover. It will be the only emergency loan programme to come with a standard interest rate, after an initial 12-month interest and payment-free period.
It is also the only programme to come with a 100% guarantee, which means the government will cover the bank’s losses if a customer defaults on their loan. The other schemes are covered up to 80%. Businesses will be able to apply through a short online form, meant to speed up the pace of approvals.
Lenders have been accused of failing to distribute funds fast enough in recent weeks, with figures showing they approved less than 50% of the 52,807 applications for the existing coronavirus business interruption loan scheme (CBILS).
Stephen Jones, chief executive of the banking lobby group UK Finance, said bank staff were “working incredibly hard to get money to those viable businesses that need it”, and that lenders were working at pace to get the new scheme up and running.
Some banks feared the fast-track application for BBLS would mean having to cut corners on affordability checks that would put them in breach of the Consumer Credit Act. The Treasury confirmed, however, that it would introduce retrospective legislation which would allow them to skip those checks to try get money to businesses faster.
Kevin Hollinrake, a Conservative MP and co-chair of the all-party parliamentary group on fair business banking welcomed the Treasury’s announcements, saying the standard interest rate was “fantastic” for small firms. He also said that changes to consumer protection rules were reasonable.
“In the current circumstances, business people will have to take a risk to get through this,” he said.
Source: Read Full Article