The chancellor has told banks offering Bounce Back loans to small firms on Monday that the rate should be set at 2.5 per cent.
In a letter to accredited lenders, who will be offering small businesses loans 100 per cent backed by the government on Monday, the chancellor Rishi Sunak said the price of the loans was critical to their success.
He wrote: ‘As a 100 per cent 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 per cent.
‘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.’
The loans will be interest and payment free for the first year. Businesses will be able to borrow up to £50,000, capped at 25 per cent of turnover.
The scheme launches at 9am on Monday with a standardised form to speed up payments, although concerns over fraud have been raised due to the minimal checks.
Many businesses have raised concerned that although the Bounce Back loans were set to be free for a year, interest rates could be unaffordable after that. The fact they will be pegged at 2.5 per cent will make them affordable and popular with many businesses.
The chancellor has also amended the Coronavirus Business Interruption Loan Scheme (CBILS) so that the minimum facility is increased to £50,001, to avoid a crossover between the schemes.
Demand is expected to be very high for the loans.
Stephen Barclay, chief secretary to the Treasury, told MPs this week: ‘Based on the CBILS applications demand will be high, not least because the majority of CBILS applications were for sums below the £50,000 (threshold).’
The chancellor’s letter to banks can be seen here.