BOUNCE-BACK LOANS TO SMALL BUSINESSES
On 27 April 2020, the Chancellor of the Exchequer announced a new business loan scheme aimed at helping small businesses during the Coronavirus pandemic. The “Bounce-back Loans” scheme to be launched on Monday 4 May is to run alongside the existing Coronavirus Business Interruption Loan Scheme (CBILS) managed by the British Business Banks.
Under this new scheme, small businesses should be able to apply for loans between £2,000 and £ 50,000 or 25% of business turnover. Unlike CBILS, this scheme comes with a 100% Government guarantee for lenders and allows for loans at below £25,000.
Under the terms of a Bounce-back Loan, businesses will not need to make any payment during the first 12 months and during that period, no interest will be charged. The terms of the repayment will be up to 6 years. The Chancellor also announced that the Government will work with lenders to agree a low rate of interest for the remaining term of the loan. According to the Chancellor’s announcement, these loans should not require looking forward criteria or complex eligibility requirements and businesses should be able to apply for a loan using a short and simple online form.
Businesses can apply for a loan if the latter:
- is based in the UK
- has been negatively affected by coronavirus
- was not an ‘undertaking in difficulty’ on 31 December 2019
The following businesses are not eligible to apply:
- banks, insurers and reinsurers (but not insurance brokers)
- public-sector bodies
- further-education establishments if they are grant-funded
- state-funded primary and secondary schools
Businesses cannot apply if they are already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). However, any business who has already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, can arrange this with their lenders until 4 November 2020.
How to apply?
Applications are around two-pages long and are submitted through an online form available from 4 May 2020. Basic details are required to verify the business exists and is eligible. Business owners and company directors will be required self-certify that the information they provide is true and their lender will decide whether or not to approve the loan. A tax return may be required in a small number of cases.
Only businesses that existed on 1 March 2020 can apply. The announcement suggests that funds should be in a business account around 24 hours after an application has been approved.
More information on this can be found here.
CORONAVIRUS BUSINESS INTERUPTION LOAN SCHEME UPDATE
To speed up the provision of finance to small and medium-sized businesses under CBILS, the largest seven SME lenders (Barclays Bank UK, Danske Bank, HSBC, Lloyds Bank, NatWest, Santander and Virgin Money) have stated that rather than relying on businesses providing forecasts and business plans in applications, lenders will use their own information. In a joint statement with UK Finance, they said that “lenders will only ask businesses for information and data they might reasonably be able to provide at speed and we will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability.”
While the exact details of the changes are still to be released, the moves is aimed to make the scheme easier to access and make the application process quicker. However, businesses should still assess carefully the implications of taking on debt finance and be comfortable that this is the right solution for them at this time.
Businesses with existing finance should also consider other options provided by their lender such as capital repayment holidays, overdrafts and working capital extensions where appropriate. Banks have also been encouraged to support businesses who have successfully applied for furlough with their cashflow needs in advance of furlough funds being received.
In summary, loans under the CBILS
- Can range between £25 K - £ 25 m
- Are interest free for twelve months
- Are guaranteed by the Government for up to 80% on each loan
- Require no personal guarantees on loans under £250 K
- Will require personal guarantees limited to 20% of any amount outstanding for loans in excess of £250 K
- Should be prohibited from asking business owners to put their house on the line
How can we help?
If you need advice to ascertain your eligibility, requirements or indeed need support in applying for the loan, please contact us and we will do our best to help you in this process.
Guidance on Gov.uk is being regularly updated so please review it frequently.