Bounce back loans should be grants if there is little prospect of them being repaid

100% government-backed Bounce Back loans are available from today at a set interest rate of 2.5%. Mark Neath, director at Old Mill says the fact that all rates are 2.5% should help with the promised fast turnaround, and he is impressed that most of the high street banks have managed to release their Bounce Back Loan offering online this morning, but warns that in some cases they are ‘not the right tool for the job’ and warns businesses against ‘inappropriate borrowing’

Mark Neath, director at Old Mill said: “Impressively, most of the high street banks have managed to release their Bounce Back Loan offering online this morning, which is remarkable in the time scales involved. By removing risk-based loan pricing and setting the interest rate on all Bounce Back Loans at 2.5%, the Chancellor has further simplified the process for banks to issue the loans as it is effectively only eligibility that needs to be checked. This ought to facilitate the promised fast turnaround.

“However, while more government support is welcome and the speed at which this has been organised is extraordinary, if a bank has already assessed a business proposition and concluded that affordability is not sufficient to repay the loan, then the bank should not lend, and it would be the wrong thing for the business to borrow.

“The fact that the treasury is going to provide a 100% default guarantee doesn’t alter the underlying facts and if a business looks unable to service the loan then borrowing would be the wrong thing.

“Even the Chancellor appears to acknowledge that some loans are going to be made with little prospect of them being repaid. If that happens that the Government guarantee is more likely than not going to be called upon, then it begs the question why not simply give a grant and spare the banks and business owners a lot of work and ultimately stress and pain to end up at the same place?

“The media narrative I keep reading day after day is that banks’ lending criteria are denying loans to businesses. Perhaps the story ought to read: banks’ lending criteria protect businesses from inappropriate borrowing, what is the Government going to offer instead? I fail to see how 100% guarantee is the answer.”