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Beyond the balance sheet

COVID-19 Bounce Back Loans for small businesses

Christina Nawrocki 01/7/2020 3 minute read

Christina Nawrocki FCCA details the latest announcements from the government to support small businesses.

Some more news that will be a potential relief to many owner managers during the COVID-19 pandemic!

Under increasing pressure to provide more support to small businesses, Chancellor Rishi Sunak has launched another initiative in the form of Bounce Back Loans.

Following reports in the FT that over half of small businesses could run out of money in 12 weeks, owner managers will soon be able to borrow up to £50,000 with a 100% government guarantee. This will include a 12 month interest free period and a quicker decision making facility.

Need finance? Get in touch for help accessing the Bounce Back Loans >

When bounce back loans will be available

The scheme will be available through "accredited" lenders from Monday 4 May 2020 and accessible via a short and simple online application. Where an application is successful, the idea is the funds will be made available within 24 hours of the loan being approved.

The rules to the loans

As a small business you'll be able to access a loan to the value of 25% of your turnover, up to a total of £50,000. Interest on the loan will only need to be paid after the first year and the government will cover all fees. The application for this loan won't involve any forward looking criteria or complex eligibility criteria, something that has slowed down some CBILS applications and incurred costs for many. This doesn't even require proof of turnover. 

Loan terms will be up to 6 years with no repayments due for the first 12 months. This is a separate initiative to the Coronavirus Business Interruption Loan Scheme (CBILS). Of note, if a business is in desperate need of funds it can access the BBL quickly and then this can be ‘transferred’ over to a CBILS loan at a later date.

To be eligible you will need to fulfil the following criteria:

  • Be a UK based business
  • Have been impacted negatively by coronavirus and the lockdown
  • Not be an "undertaking in difficulty" as of 31 December 2019

An issue of debt

Whilst no doubt welcomed by many, plenty of business owners may be wary of raising more finance. The concern being one of uncertainty. If the economy takes time to recover to pre-pandemic levels of demand, then it could be difficult for SMEs to service their debts.

The government have set an interest rate on the BBL loan of 2.5% per annum payable after 12 months. Of note, the rate is not set nor is it controlled by lenders.

A government under pressure

The £330bn coronavirus loan schemes to date have come in for criticism in many areas. Recent figures suggest that just 2.6% of CBILS loans have been successful. That means only £8.7 billion of the £330 billion promised has actually been released.

Many  businesses to date have had their applications for CBILS support rejected and have found themselves feeling very frustrated. There have been calls for the Chancellor to underwrite 100%, instead of the existing 80% of business interruption loans, to encourage banks to increase the success rate of applications

The 100% guarantee for the new, smaller loans combined with a fast track approval system will be welcomed by many sole traders, micro, and small business entities. 

More details about the scheme will be released soon so be sure to bookmark and revisit this post for further details.

Bounce Back Loans and how to access them

The content of this post was created on 28/04/2020 and updated on 01/07/2020.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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