Pressure was mounting this weekend on chancellor Rishi Sunak to offer 100% government-backed loans as part of the Covid-19 business lifeboat scheme to prevent thousands of small and medium-sized firms from going bust.

Business groups said commercial lenders, which must currently cover 20% of loan losses under the Cbils government scheme, were turning down requests to borrow rescue funds that could allow firms to remain solvent through the coronavirus lockdown.

Adam Marshall, director general of the British Chambers of Commerce, said it was a matter of urgency that the Treasury simplify the system to allow more businesses to access the one-year, interest-free loans.

Carolyn Fairbairn, director general of the CBI, said on Friday that ministers needed to offer 100% government-backed loans to prevent thousands of businesses going to the wall.

It would be “an important part of the mix” of loans and grants on offer to rescue firms, she said.

Bank of England governor Andrew Bailey has suggested that a government guarantee for loans under £25,000 might be the only way to circumvent standard bank credit checks.

“Is there a case [for 100% guarantees] for very small firms that account for quite a high volume of applications? Would it unblock things to change the risk appetite for those firms?” he asked.

The latest figures from the finance industry show banks have received around 28,000 loan applications under the month-old scheme, and agreed to make 6,000 loans. It is not known if the remaining 22,000 applicants have been rejected or are still waiting to find out how their application has fared.

Last week shadow business secretary Ed Miliband urged the business secretary Alok Sharma to overhaul the Cbils loans scheme, or risk thousands of firms going under.

Miliband recommended that Sharma and Sunak examine the Swiss model, which is based on a single government form that is used by all lenders, and is backed by a 100% government guarantee.

At the time, business leaders were reticent to back Miliband’s call, but over the last week the low level of applications and loan agreements has spurred them on to demand a rethink.

They have also been joined by former chancellors George Osborne, Norman Lamont and Sajid Javid, who have called on Sunak to “cut out the banks” and move to 100% government-backed business loans.

Treasury officials are understood to be reluctant to underwrite all loans to small businesses, fearing the system could be abused. They are, however, discussing with business groups how to improve the loans system following criticism that banks have applied strict lending criteria, preventing firms from accessing loans.

In particular, banks must ask whether borrowers can afford to repay the loans, which can be made over a six-year period.

Miliband said it was “almost impossible” for many companies to answer the question when the current crisis meant there was so much uncertainty.

“The case for 100% underwriting by the government is now unanswerable. Support for it is cross-party and echoed by business groups and the Bank of England.

“The fate of many businesses lie in the decisions the chancellor makes over the coming days. He needs to act now, or businesses will begin to go to the wall in increasing numbers.

Last week, the Treasury extended the CBILS scheme to all viable businesses with turnover of £45m-£250m, which can apply for government-backed loans of up to £25m. Firms with a turnover of more than £250m will be allowed to borrow up to £50m from lenders.