The government has announced a £ 1.25 billion package to support innovative new companies that are not eligible for existing coronavirus rescue programs.
It will match up to £ 250 million in private investment and add £ 550 million to an existing loan and grant program for small businesses that focus on research and development.
Adding up, this equates to £ 800 million in new money to support budding businesses.
Chancellor Rishi Sunak said startups will help UK growth after the coronavirus crisis.
“This new world-leading fund will mean that they can access the capital they need in this difficult time, ensuring that dynamic and fast-growing businesses in all sectors will be able to continue creating new ideas and spreading prosperity,” he said. .
Newly established companies often lose money in their early years, which makes them ineligible for the government’s emergency loan scheme. But it also makes them a risky investment.
Some of the world’s best known and most valuable companies, including Amazon and Tesla, took years to make a profit. Uber hasn’t made any profits yet.
However, the government wants to ensure that the economic impact of coronovirus does not kill some of the UK’s most innovative and fastest growing companies.
What is the trick?
However, the rescue package comes with attached strings.
To qualify for government money, a company must have raised £ 250,000 privately over the past five years.
In addition, any amount invested by the government must be offset by private investors. And, if the money isn’t reimbursed, the government will take a stake in the company.
The package has been widely accepted by the business community, but some have warned that – as with other coronavirus support mechanisms – complexity is the enemy of speed. And it’s the speed that is all important.
Over the past week, over one billion pounds of government guaranteed loans had been approved on a total support package of 330 billion pounds.
Under the scheme, the government guarantees 80% of each of the loans issued by banks. But many companies have complained that those banks have been slow to lend money because they would be left to cover 20% of loan losses that cannot be repaid.
This put pressure on the Treasury to increase the government guarantee to 100% to speed up the approval process.
Treasury officials raised the spectrum of widespread abuse of the program if the government fully guaranteed all loans to coronavirus-affected companies. But Bank of England governor Andrew Bailey said that increasing the government guarantee would make the process “less complicated”.
And a former senior Treasury official, who didn’t want to be named, warned that Mr. Sunak’s department was trying to be “too smart in the middle”, a tacit admission – perhaps – that in a time of economic crisis, nothing exists like that as a blunt instrument.
Meanwhile, the head of the International Monetary Fund, Kristilan Georgieva, has told the BBC that governments around the world should pay the money as quickly as possible but, he said, “keep the revenue”.
The emergency is now. The showdown can come later.