The government is expanding its Covid-19 rescue loan scheme to cover small businesses on the edge of collapse, a move that Labour warned would come too late for many troubled firms. With less than a week before the furlough scheme covering 9 million employees is cut back, plunging more employers into debt, the Treasury said it would use a change in EU state aid rules to allow firms previously locked out of the coronavirus business interruption loan scheme (CBILS) to access government funds. The economic secretary to the Treasury, John Glen, said he would write to major lenders advising them of the change, which will make more small businesses – specifically those that have racked up large losses and debts – eligible for loans of up to £5m. By the end of June, more than £11bn had been lent to more than 50,000 businesses under CBILS. Previously, businesses classed as “undertakings in difficulty” were unable to access CBILS under EU state aid rules, which the UK has been required to adhere to during the Brexit transition period. “From today, businesses in this category and which have fewer than 50 employees and a turnover of less than £9m can apply to CBILS,” he said. Ed Miliband, Labour’s shadow business, energy and industrial strategy secretary, said: “Any help in breaking down the obstacles to loans is welcome, but this has all taken far too long, with too many businesses left out in the cold. Time will tell whether this sorts out the growing backlog of CBILS loans. “There also remain serious, unaddressed problems of loans for larger firms, CBILS, and growing evidence of firms being shut out of bounce-back loans unless they are an existing customer of a major high street bank. Every week that passes with these problems being allowed to continue puts at risk the future of businesses, the livelihoods of workers and the strength of our economy.” The business lobby group, the CBI, said widening the eligibility rules for the CBILS scheme was “an important step that will help more businesses get the critical support they need”. But some experts warned that the expansion of CBILS to weaker companies could add billions of pounds to the rescue bill and prop up firms that should be allowed to go bust. The government provides all CBILS loans with an 80% guarantee, meaning banks will be left to shoulder 20% of potential losses. The more popular bounce-back loan scheme, under which £29.5bn had been distributed to 967,000 businesses by 28 June, provides a 100% government guarantee. The Office for Budget Responsibility, the government’s independent economic forecaster, has forecast default rates of 10% for CBILS loans and 40% for bounce-back loans. Jagjit Chadha, director of the National Institute of Economic & Social Research thinktank, said: “While providing a simpler approvals process is helpful and providing support to businesses that were in difficulty in December 2019 may support some in their recovery during the pandemic, there is a danger that older businesses that should otherwise go out of business may continue to trade with even higher levels of debt, which may hold back future investment and job creation. “It would be just as important, perhaps even more so, to consider boosting lending for new businesses and startups.” Glen said it had taken months of lobbying by the government and industry groups for a relaxation of rules in the European Temporary State Aid Framework “to make sure that small businesses who are not insolvent or receiving rescue aid can benefit”. He said: “Our loan schemes have been a key part in supporting businesses, enabling them to bounce back as we kick-start the economy.” The small business minister, Paul Scully, said: “Small businesses will play a vital role as we seek to recover our way of life and get the economy moving again, and it is essential we continue to support them through this difficult period.”