Sunak’s small business bounce back loans: Justifiably praised but they aren’t risk free

The chancellor and his team have made this scheme quicker, simpler and 100% state guaranteed but hurdles aplenty remain, says James Moore

Rishi Sunak: the chancellor has made his new business loan scheme simple to apply for (AFP/Getty)

The applications are pouring in and if the government’s emergency Bounce Back Loan Scheme lives up to the hype, the money will be pouring out very soon. If.

Up to £50,000 is being made available to businesses that were trading prior to 1 March via banks, with the stipulation that they weren’t in financial difficulty at the time. This is not intended as a bailout, and while the application process is supposed to be simple, checks will still have to be made.

The pre-existing Coronavirus Business Interruption Loan Scheme, which offers up to £45m and is 80 per cent underwritten by the taxpayer, has faced criticism for getting money out too slowly.

In excess of 50,000 applications have been made, but more than half are still awaiting approval. The finger of blame has been pointed at the banks. Not our fault, they say, we still have to do the credit checks, and the assessments, and we also have to find the people to handle the work. If we didn’t do that, we’d get shot by our regulators, and that’d be just the start.

In response, chancellor Rishi Sunak and his team have made the newer scheme quicker and simpler and 100 per cent state guaranteed, with the aim of ensuring that smaller businesses get the breathing space they need. Ditto the punch-drunk economy they serve as the backbone of. At least until the next problem emerges.

While the scheme has been widely and justifiably praised by business groups, it may be the cause of a few of them down the line. Some firms will put in because they’re in the happy position of looking for expansion capital – they do still exist even in the current climate – and for them a loan at 2.5 per cent that you don’t have to start paying back for a year is a gift from the gods. The scheme is open to all, and that’s fine if their growth helps drive recovery.

There are others, operating in shut down sectors, for whom the money will serve as a very necessary lifeline, even on top of the support that’s already been offered.

But there will inevitably still be some for whom these loans will merely prolong the agony as Britain enters a very sticky economic situation, one that will inevitably be exacerbated by the government’s Brexit extremism.

Not to put too fine a point on it, but these loans are still loans. At some point they will have to be repaid. It isn’t just the state that is taking on a welter burden of debt to cope with the crisis. The private sector is too.

Does raising this issue make a Jeremiah of me? If so I’m hardly alone.

There isn’t a great appetite for criticising the scheme, and with good reason. It’s necessary.

But the Institute of Directors, in a generally favourable response, noted that “taking on debt at such a time remains a difficult decision for any director”.

That’s borne out by what I was told by one of the big banks: while it received a flood of applications on the scheme’s first day, it said the demand for other types of support, payment holidays on existing debt being one good example, is stronger still.

Even on favourable terms, the cheques that will be arriving aren’t blank. Parts of the business community are clearly alive to the danger.

The scheme will feed into the challenges the economy will face as it emerges blinking into the sunlight. UK plc is going to require some careful management, some strategic thought, and some pragmatism. Those aren’t obvious characteristics of the current government.

Sunak’s star has been on the rise, but he needs to show that he’s as good in the aftermath of a crisis as he is in the crisis itself, otherwise another one will be just around the corner.

There are seeds aplenty being sown.