According to the Financial Times, the new scheme, which could be launched next week, will be targeted at as many as 1m of the UK’s smallest companies, typically employing a handful of workers.
The move follows calls from Bank of England governor Andrew Bailey, and former Tory chancellor George Osborne, to speed up lending by offering full guarantees as businesses struggle for cash.
It will work alongside the larger coronavirus business interruption loan scheme (CBILs), which has paid out almost £3bn to 16,600 companies according to the latest figures.
Lenders have received more than 36,000 applications so far, which means that almost half have been approved to date.
The CBILs form part of a £350bn financial package unveiled by the Chancellor last month to help businesses navigate the Coronavirus crisis.
While some within the industry have welcomed the scheme, others have said it isn’t in the interests of many hospitality businesses to try and obtain one of these loans.
Speaking to BigHospitality last month, London Union's Jonathan Downey suggested that the Government had to rethink its approach.
He said: “The problem is twofold. Most businesses won’t qualify for a loan because the lender won’t consider them to be viable. And for those that do qualify, why would they want to take on more debt at a time when they have little to no income. All it will do is postpone the problem and increase their liabilities