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Law360, London (March 21, 2020, 1:10 PM GMT) -- British businesses struggling under coronavirus-related losses can gain access to government-backed loans from retail banks starting Monday as part of a broader economic rescue package.
Chancellor of the Exchequer Rishi Sunak said Friday that the Coronavirus Business Interruption Loan Scheme, operated by the British Business Bank, will make the loans available through more than 40 lenders to help offset the impact of the pandemic. The £330 billion ($374 billion) program will provide lenders with an 80% guarantee on interest-free loans of up to £5 million in value.
The loans, announced on Tuesday, were initially criticized as not going far enough. At a press conference on Friday, Sunak said the interest-free period on the loans has been extended from six months to a year.
"Thanks to the enormous efforts of our critical financial services sector, those loans will now be available starting on Monday," Sunak said.
Under the plan, banks will not be charged a fee for the credit guarantees and will receive interest payments directly from the government for the first 12 months.
The loans are available to businesses with a turnover of less than £45 million a year and those that can show they were in good financial health before the pandemic. Larger companies will be aided by a separate measure, the COVID-19 corporate financing facility, which allows the Bank of England to buy short-term debt from affected businesses.
The programs were part of a fiscal package to keep employers solvent and able to pay workers as demand for goods and services plummeted due to government restrictions. After previously cancelling all large gatherings and events, the government on Friday ordered that all pubs, restaurants, leisure centers and movie houses be shut down to slow the spread of the virus.
Employers will be given added support in the form of grants from HM Revenue & Customs to cover most of the wages of employees who are not working but are furloughed and kept on payroll, rather than being laid off. The government grants will cover 80% of the salary of these workers up to a total of £2,500 a month. The plan was assigned an initial period of three months, but could be extended.
For further relief, the government will defer payments of value-added tax paid by businesses for three months until the end of June, amounting to a direct cash provision of £30 billion for employers.
"The economic intervention that I'm announcing today is unprecedented in the history of the British state," Sunak said.
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