Guidance and analysis of the Government’s Bounce Back Loan scheme for small businesses. Updated: 13th May 2020

Guidance and interpretation as of 13th May 2020 of the Government’s Bounce Back Loan scheme for small businesses. The scheme has now launched: click here to apply. This article will be updated as more information is available.

Summary

If your business has been negatively affected by the coronavirus and was not ‘undertaking in difficulty’ on 31st December 2019, you will be able to apply for a ‘Bounce Back’ loan of up to 25% of turnover, up to a maximum of £50,000.

Eligibility

Your business:

• is based in the UK
• was trading on 1st March 2020
• has been negatively affected by the coronavirus
• was not ‘undertaking in difficulty’ on 31st December 2019
• is not a bank, insurer, reinsurer, public sector body or a public primary or secondary school.

Businesses who have applied for a loan under the Coronavirus Business Interruption Loan Scheme (CBILS) will also not be able to apply. However, your loan can be transferred to the Bounce Back loan scheme by contacting your lender no later than 4th November 2020.

What does not ‘undertaking in difficulty’ mean?

Unlike the Coronavirus Business Interruption Loan scheme, businesses will not need to demonstrate their viability post-coronavirus.

However, firms will need to demonstrate they were viable before the coronavirus crisis. The government specifically mentions the 31st December 2019 as the date the viability of the business will be assessed.

A business is considered in difficulty if it met any one of the following criteria on 31 December 2019:

• Individuals or companies that have entered into collective insolvency proceedings;
• Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs less than 3 years old);
• Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan;

Please use the form at the bottom of this page if you require further clarification regarding what ‘undertaking in difficulty’ means.

What rate of interest will I be charged on a ‘bounce back’ loan?

It has now been confirmed that loans will be available at a fixed rate of interest of 2.5%.

Application

• The loan scheme will be launched on 4th May 2020.
• Applications will be made to a network of accredited lenders via a simple two page online application form. 
• Loans should be received ‘within days’ of applying and within 24 hours of approval.
• Unlike Business Interruption Loans (CBLIS), firms are not expected to have to provide forecasts given that the viability of the business post-coronavirus is not considered.

Should I apply for a ‘bounce back’ loan? 

Businesses will have up to six years to repay the amounts borrowed under the ‘bounce back’ loan scheme. This is good news for small businesses owners who have been concerned about taking on further short term debt.

Additionally, no repayments will be due within the first year and the government will cover the first 12 months of interest payments. This also reduces the short term cash flow pressures that so many small businesses have been facing.

The government also confirmed they are working with accredited lenders to agree a low rate of interest and unlike CBLIS which are only 80% backed by the government, ‘bounce back’ loans are 100% backed. This combined with the fact that the viability of the business post-coronavirus will not be considered, should lead to thousands more approved applications than we have seen under CBLIS. 

Crucially, funds should be released to small businesses ‘within days’. This a vital lifeline for small business owners who may be struggling to pay April wages or are concerned about covering their overheads in May.

Conclusion

If your business requires more than £50,000 to continue trading, you will need to apply for a Business Interruption Loan: details and guidance can be found here.

However, for others with more modest needs, the ‘bounce back’ loan scheme appears to be a highly attractive proposition,