Borrow up to £50k with the Bounce Back Loan Scheme
Borrow up to £50k with the Bounce Back Loan Scheme
From Monday 4 May, businesses can borrow between £2,000 and £50,000 under the Bounce Back Loan Scheme. In just the first minute of being launched, Barclays reported that it received 200 applications. The new loan scheme is aimed at smaller businesses and sole traders, and is designed to be easier to apply for than the Coronavirus Business Interruption Loan Scheme (CBILS). Further, applicants do not have to provide security and personal guarantees, so this scheme may be more attractive than the CBILS. If your business is experiencing cashflow issues due to COVID-19, the Bounce Back Loan Scheme may be a crucial lifeline.
What is it?
The Bounce Back Loan Scheme (BBLS) is a new scheme introduced to help smaller businesses impacted by coronavirus (COVID-19). It aims to assist those businesses to borrow between £2,000 up to 25% of the business’ turnover (the maximum amount available is £50,000). There is no turnover limit, so any size of business may apply.
The government will cover any interest payable in the first 12 months through a Business Interruption Payment to the lender, and lenders will benefit from a 100% government-backed guarantee.
The government has set the interest rate for this loan at 2.5% per annum, and the repayment term is fixed at six years. No repayments will be due during the first 12 months. Businesses remain 100% liable to repay the full loan amount, as well as interest, after the first year.
The Scheme will be delivered through a network of accredited lenders. Unlike the CBILS, lenders are only able to provide term loans, rather than overdrafts, asset finance or invoice finance.
Who is eligible?
The full terms of the BBLS are available on the British Business Bank’s website here, but below are the main criteria for eligibility. The business must be able to self-declare that:
- It has been adversely impacted by COVID-19;
- It was not a “business in difficulty” at 31 December 2019;
- It is engaged in trading or commercial activity and was established by 1 March 2020;
- It is not using the Coronavirus Business Interruption Loan Scheme; and
- It derives more than 50% of its income from its trading activity
How do I apply?
The BBLS is available through the British Business Bank’s accredited lenders (see list here). You will be required to fill in a short online application form and self-declare that your business is eligible for the Scheme.
In the first instance, you should approach your existing lender, provided that they are on the accredited list.
The Scheme is open until 31 January 2021, although it may be extended if circumstances require it.
The Scheme has been designed to enable businesses to access finance quickly. The online application form is expected to be assessed by lenders in a matter of days, and so it is envisaged that funds will be released fairly quickly.
Other points worth knowing about the BBLS:
- Lenders are not permitted to charge any fees for the loan;
- Although the loan is for a fixed six-year term, early repayment is permitted at any stage, without early repayment fees;
- The loan can only be used to provide “economic benefit” to the business (e.g. for working capital); however, there is nothing in the Scheme’s rules to prevent the loan from being used to support a business-owner’s income, and, indeed, working capital does include wages (which in turn includes those of the business owner), so this could be a crucial lifeline where you have exhausted other options; and
- A business is not able to take out a BBLS facility if it has been approved for a CBILS facility (and vice versa); however, a business which has a CBILS facility can apply for a BBLS facility if the BBLS facility will refinance the CBILS facility in full.
BBLS or CBILS?
If you need a loan of less than £50,000, it seems preferable to apply for the BBLS than the CBILS because:
- Interest is set by government at 2.5% per annum, whereas the interest and fees for CBILS are set by the lenders (there is also no “arrangement fee” for the BBLS);
- No repayments need to be made in the first 12 months (under CBILS, repayments do need to be made in the first 12 months, and any repayment holidays are at the discretion of the lender);
- For BBLS, borrowers need to self-declare that they are eligible for the Scheme, and lenders do not have to assess a business’ affordability or viability; conversely, under CBILS, a borrowing proposal must be submitted to lenders, who have the final decision on whether to provide finance; and
- No personal guarantees or security are necessary for BBLS.
We will continue to keep you updated in the coming days, weeks and months, as the government releases more detail on the support available to businesses and individuals. We cannot emphasise enough that “cash is king”, and the preservation of liquidity is critical during the current challenges.
Please get in touch with your usual contact if you’d like any assistance with the support available. You can call us on 01892 546546, or use any of our usual channels to communicate with our team. If the main line is busy, please do leave a message and we will get back to you.
Please note: The information above is based on our understanding and interpretation of the government's guidance as of 12pm on Monday 16 November 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.