Covid-19: Government launches Bounce Back Loan scheme for small firms

5th May 2020.

Covid-19: Government launches Bounce Back Loan scheme for small firms

Following intense lobbying over fears millions of businesses would never recover from the coronavirus lockdown, the Chancellor yesterday announced to the House of Commons the launch of a new loan scheme for Britain’s smallest firms. The new Bounce Back Loans offer a fast-track finance scheme of loans which are 100% government-guaranteed and offer up to 25% of a business’ turnover in value; although whether that is actual, average or projected turnover remains to be seen.

The key terms of these loans are as follows:

– 100% guaranteed
– Interest free for the first 12 months
– No fees
– Lending period of up to six years
– No repayments in the first 12 months
– Suggestion of ‘low’ interest rates
– Funds expected to be received within 24 hours of application.

With a maximum loan value of £50,000, and terms of up to six years, there will be no interest payable or capital repayments due in the first year. The Government have announced that they will also be working with lenders to agree a low rate of interest for the remaining period of the loan.

Despite the numerous support packages announced in the past few weeks, the Government have received criticism relating to the Coronavirus Business Interruption Loan Scheme (CBILS), which was designed for SMEs, after businesses complained that lenders were complicating credit decisions and that payments were being delayed. Under CBILS, firms with a turnover of up to £50m can apply for loans of up to £5m, with 80% of the debt backed by the Government. The introduction of the Bounce Back Loans (BBL) appears to be a response to this criticism.

Under the new BBL scheme, businesses are required to fill out what Rishi Sunak described as a “simple, quick, standard form”. Unlike the CBILS, lenders will not be required to perform any forward-looking tests of business viability, meaning no requirement for business plans and cashflow forecasts. Instead, the Bank of England have stated that lenders should rely “on judgement in the absence of financial forecast information” when making credit decisions. You can apply for a Bounce Back Loan if your business meets the following criteria: 

– It is based in the UK 
– It has been negatively affected by coronavirus 
– It 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 

You are also not able to apply if you are already claiming under CBILS. However, if you have already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, you can arrange this with your lender until 4 November 2020. The Bounce Back Loan applications can be made from 9:00 am next Monday 4th May, with the loans expected to arrive within 24 hours.

More information about the scheme and how to apply is expected to be published shortly, and we will provide you with updates as soon as they are announced.

Hopefully, this will speed up the process of loan applications for viable small businesses with fears of running out of cash in the coming weeks.

If you would like any support with applications for additional funding, or want to understand how the various packages and reliefs relate to your particular position, please speak John Ierston of Nick Jenkins on 01244 320532 or email [email protected]
UHY Hacker Young accountants