Coronavirus: Bounce Back Loans

The Chancellor announced this week that a new Bounce Back Loans scheme will be launched on 4 May 2020.

This scheme will allow small and medium-sized businesses to borrow up to £50,000, or 25% of “business turnover” and the minimum loan amount will be £2,000.

The government will guarantee 100% of the loan and no fees or interest will be payable for the first 12 months. Loan terms will be up to six years and no repayments will be due during the first 12 months. Furthermore, the government plans to work with lenders to agree a low rate of interest for the remaining period of the loan.

Bounce Back Loans will be delivered through a network of accredited lenders and, according to the Chancellor, most loans will be paid within 24 hours of approval.

Eligibility

Based on the current limited detail available on GOV.UK, you can apply for a loan if your business:

  • is based in the UK;
  • has been negatively affected by coronavirus;
  • was not an ‘undertaking in difficulty’ on 31 December 2019.

Exclusions

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.

If you’re already claiming funding

You cannot apply if you’re already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). However, if you’ve 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.

How to apply

The Bounce Back Loan scheme will be available from 9am on 4 May 2020. More information is expected to be published shortly.

Our initial thoughts

Obviously, the announcement was only made on 27 April and we can only comment based on the information available so far.

The relatively small maximum amount of £50,000 could mean this scheme will be particularly useful for businesses when the lockdown measures are sufficiently relaxed for them to start trading in some capacity. In effect, it might be viewed as working capital initially, but note that after the first 12 months, repayments will be required.

The Chancellor said that this scheme was a consequence of many firms struggling to access credit during the current COVID-19 lockdown. It was billed as a “simple, quick, easy solution for those in need of smaller loans,” and businesses should be able to apply from lenders using a two-page standard form with no forward-looking business viability tests or eligibility criteria. Let’s hope this proves to be the case.

The fact that the scheme is quoted as being “100% backed” by the government obviously sounds attractive for businesses. This guarantee was referred to by the Chancellor as an “extraordinary” measure to “carefully target” those who are most in need for quick finance as a result of Coronavirus, rather than rolling out a blanket 100% government backed guarantee for all other loans made through the larger CBILS. This does not seem wholly unreasonable, as to do this would surely result in taxpayers paying even more tax in the future to pay for a blanket guarantee for all businesses, in addition to any expected tax rises to cover the government support announced already.

Our Institute, ICAEW, has commented: “These new loans should help speed up the process of getting money to small businesses, which our members tell us has been an issue until now.

“However, we still believe that taking on debt is not going to be suitable for some, especially smaller businesses, and we would like to see greater use of grants as part of the overall support package”.

Definitions under the above criteria, such as “undertaking in difficulty” at 31 December 2019 and “has been negatively affected by coronavirus” will obviously need to be clarified and tested in practice, and we will be monitoring the developments over the coming days.

Sources (as at 28/4/20): https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan
https://www.icaew.com/insights/viewpoints-on-the-news/2020/apr-2020/government-launches-new-small-business-micro-loan-scheme?utm_campaign=Members%20-%20ICAEW&utm_medium=email&utm_source=1389934_ICAEWDaily_News_28April2020&utm_content=micro&dm_i=47WY,TSHA,JWHLV,3M0L6,1

If you would like advice on any of the issues raised, or for help with services like bookkeeping, cash flow management or payroll during the Coronavirus pandemic, please call us on 01225 325580 or email info@richardsonswift.co.uk.

Please note that this is only a summary of the main issues and should not be construed as advice. Every effort has been made to ensure factual accuracy at the time of publication (28 April 2020), however, the government response to the Coronavirus situation is changing 24-7, so it should not be relied upon completely.