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Britain Launches New Pandemic Loan Support Scheme

London's Oxford Street during lockdown.
London's Oxford Street during lockdown. Shutterstock.

Britain’s finance minister Rishi Sunak on Wednesday launched a new state-backed loan scheme for businesses hit by the Covid-19 pandemic, replacing existing programmes that have seen struggling businesses borrow some £73 billion so far.

The new scheme will offer loans from £25,000 to £10 million ($13.97 million), with an 80 percent state guarantee, replacing the previous ‘bounce back’ scheme aimed at small businesses and programmes for larger firms.

Sunak did not give details on the interest rates or eligibility criteria for the new scheme, with media reports ahead of his Budget plan suggesting they are likely to be more stringent.

Sunak is trying to reduce companies’ reliance on the previous state-backed lending schemes as Britain prepares to ease lockdown restrictions which should lead to an economic recovery.

More than £45 billion had been borrowed by over 1.4 million companies under the so-called Bounce Back Loan Scheme for smaller businesses, which allows banks to lend up to £50,000 with 100 percent state backing.

The country’s leading spending watchdog last October warned more than half of that money may never be repaid due to fraud and defaults, given the limited checks banks were required to do.

A further £27 billion has been loaned via two schemes for medium and large-sized companies, with 80 percent of the lender’s exposure backed by the state.

The lending support has helped defer or even prevent bankruptcy for many companies in hard-hit sectors such as retail and travel, meaning Britain’s banks have yet to see much impact on their loan books from the pandemic.

But the support has sparked concerns that the loans are propping up ‘zombie’ companies that will collapse as soon as the life support plug is pulled.

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