Government launches Bounce Back Loans scheme for small businesses

Posted on Wednesday April 29, 2020

Business loan image

The Chancellor has announced a new loans measure, known as the Bounce Back Loans scheme (BBLS), which will allow small businesses to borrow up to 25 per cent of their turnover, up to a maximum of £50,000.

The BBLS will be 100 per cent backed by a Government guarantee, unlike the Coronavirus Business Interruption Loan scheme (CBILS) and will offer an interest-free period for 12 months.

Businesses will be able to apply online via a short and simple two-page self-certification form and because the loan is entirely Government-backed it is hoped that lenders will have the confidence to offer finance without the lengthy and complex red tape associated with CBILS and other loan schemes.

Importantly, firms applying for the new loans will only have to prove that they were viable in the past before the crisis, not that they will remain viable after the crisis.

This has been a major issue with CBILS, which has required some businesses to demonstrate to lenders that they will remain viable in the future.

However, there remains some concern that banks will still wish to assess the latest financials through a ‘cash available to service debt’ calculation. Where there isn’t sufficient cash to service the debt then there are fears that the loan may still not be granted despite the Government guarantee. Further clarification is expected soon.

The scheme has been designed specifically for small firms, including sole traders, who need vital cash injections to help them operate during these challenging times. Business can apply for a loan if it is based in the UK, has been negatively affected by coronavirus and was not an ‘undertaking in difficulty’ on 31 December 2019.

Rishi Sunak said the BBLS is intended to bolster the existing package of support available to the smallest businesses, such as the Coronavirus Job Retention scheme (CJRS).

The Treasury created the BBLS with the help of small business representatives and the scheme ensures that businesses won’t pay any fees and that no repayments will be due during the first 12 months.

The Chancellor, Rishi Sunak, said: “Our smallest businesses are the backbone of our economy and play a vital role in their communities. This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.

“This is in addition to business grants, tax deferrals, and the job retention scheme, which are already helping to support hundreds of thousands of small businesses.”

The scheme will launch for applications from 9am on Monday 4 May and the loans will be provided through a network of accredited lenders.

The Government said that loans will be “advanced as quickly as possible” and that they will “agree a low standardised level of interest for the remaining period of the loan.”

Businesses will now have to wait for the online form to go live shortly so that they can make an application. We will keep you up to date on the application process once more is known.

If you would like support with any of the Government-backed loan schemes, including advice on loan agreements and contracts, please contact Maung Aye.