Small businesses are set to benefit from a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders, the UK Chancellor Rishi Sunak has announced.

The so-called Bounce Back Loans scheme, which will provide loans of up to £50,000, will help bolster the existing package of support available to the smallest businesses affected by the Covid-19 pandemic.

The government said the scheme, which will allow businesses to borrow between £2,000 and £50,000, has been designed to ensure that small firms who need vital cash injections to keep operating can get finance in a matter of days. The loans will be interest free for the first 12 months, with a ‘low standardised’ level of interest charged for the remaining period of the loan.

The scheme will launch for applications on Monday 4 May, when businesses will be able to access the scheme through a network of accredited lenders.

The announcement comes after it emerged that lenders and businesses were struggling to implement the existing Coronavirus Business Interruption Loan scheme (CBILS), which provided business loans with an 80% government guarantee.

The government, which has been consulting with business representatives about the design of the new scheme, will provide lenders with a 100% guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months.

The loans will be easy to apply for through a short, standardised online application. The loan should reach businesses within days, providing immediate support to those that need it as easily as possible.

The Chancellor said: ‘There will be no forward-looking tests of business viability; no complex eligibility criteria; just a simple, quick, standard form for businesses to fill in.’