The government have announced another scheme to (hopefully) help out small and medium-sized businesses who have been adversely affected by coronavirus (COVID-19) by allowing them to apply for government-backed loans of up to £50,000, with 12 month’s free of interest, fees and repayment.
In essence, it’s been designed to help those who have not been successful in accessing the CBILS (Coronavirus Business Interruption Loan Scheme), since you cannot apply for this scheme if you already have been accepted for the CBILS – however the government have stated that you can transfer to this new scheme if you are already on the CBILS and prefer this scheme, but you have until November 2020 to arrange this. If you have an existing CBILS loan, up to £50,000 of this can be transferred over to a Bounce Back Loan (assuming the lender, that you have your CBILS with, is offering them). If businesses need more than £50,000 then they should consider applying for a CBILS loan instead. Businesses can have either Bounce Back Loans or CBILS not both.
Before I get into brass-tacks let me just outline a few ‘please note'(s)! The government have managed to arrange a fixed interest for these loans of 2.5% – in my humble opinion this is a very good interest rate, considering if you shop around for any business loan you’ll see they are in the 7 – 9% range so this is definitely a plus of the bounce back loan. However as business accountant I always err on the side of caution with loans, please don’t just be enticed by this low interest rate and get one for the sake of it. Only get one if you really need the assistance due to negative effects of coronavirus on your business and you know you’ll be able to repay the full amount within the proposed 6 year term.
I will update this blog accordingly as-and-when new information is delivered from the government, but here is everything we know as of Monday 4th May 2020.
UPDATE (Sept 2020): On the 25th September 2020 the chancellor announced that individuals using the business bounce back loans will be given longer to repay the loans. This is applicable to new and existing loans and can now be repaid over 10 years, with payment holidays and interest-only repayment periods.
UPDATE (MARCH 2021): Bounce Back Loan and CBILS are now coming to an end, so the government are introducing a new recovery loan scheme to take their place. Businesses of any size can apply for loans from £25,000 up to £10million through to the end of 2021. The government will provide a guarantee to lenders of 80%.
What is the Coronavirus Bounce Back Loan?
The Coronavirus Bounce Back Loan is a fast-track finance scheme / rapid loan scheme designed help small and medium-sized businesses by allowing them to borrow between £2,000 and £50,000 – or 25% of turnover up to £50,000. Where they say your turnover, I believe your 2018/2019 Tax Return may be used
So this also refers to Sole-Traders (Entrepreneurs / Micro Businesses) as we understand, and it will be a simple online process to apply.
The loans can be taken over a term of 6 years and the amount will be 100% backed by the government and delivered through a network of accredited lenders. There will be no fees, interest or even loan repayments to pay for the first 12 months and the government have worked with lenders to agree a ‘low rate of interest’ which is 2.5%.
For those of you who prefer to skim read the main facts in a bullet point list, please see below:
- Borrow from £2,000 up to £50,000
(up to a maximum of 25% of your turnover – I believe your 2018/2019 Tax Return may be used to assess this)
- No arrangement fee
- Fixed 6 year loan term, with no early repayment fees if you wish to repay the loan early
- Interest rate 2.5% fixed
- 12 month capital repayment holiday is automatically applied at the start of the loan (this may mean you pay more interest over the term). However, you can choose to make repayments at any time
- Interest for the first 12 months is paid by the government, and then by you for the remainder of the loan term
- Personal guarantee is not required
- Businesses can apply through an online application process
- Once approved, the cash will be available in days
- Note: the borrower remains liable for all of the debt
Who is Eligible for the Loan?
There are a few main stipulations for businesses eligible for the scheme:
- Your business must be based in the UK and established before 1 March 2020
- Your business must have been negatively affected by coronavirus
- Your business was not an ‘undertaking in difficulty’ on 31 December 2019 (in simple, your business wasn’t about to go bust at the end of 2019)
- You cannot have ‘adverse credit’, meaning no CCJ’s (County Court judgments), bankruptcy, arrears etc, meaning your business cannot be subject to collections or collective insolvency proceedings, debt relief or an individual voluntary arrangement, an undischarged bankrupt nor in a voluntary arrangement with your creditors nor in liquidation
The government have also provided a list of businesses that are ineligible for this scheme:
- 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
How to Apply for a Coronavirus Bounce Back Loan
The application process is now open and in order to apply you must go directly to the bank that you hold a business account with. If you run your business through a personal bank account I believe you will need a business bank account in order to facilitate the Bounce Back loan. You may need to apply for a Loan Servicing Account.
There are of course many terms & conditions relating to the loans, so please be sure to check the contract before agreeing to anything. Your bank will be the best place to check all of this information with as each one will work differently, in order to apply just visit the link below depending on who you bank with:
If you would like any further information ‘from the horses mouth’ (so-to-speak!) then please read through the government’s own details listed here – https://www.gov.uk/government/news/small-businesses-boosted-by-bounce-back-loans