Understanding the Bounce Back Loan Scheme
8th May 2020
Last week it was announced that the Bounce Back Loan Scheme for UK companies would be available for application from Monday 4th May.
The Bounce Back Loan Scheme (BBLS) is available between £2000 to 25% of turnover, up to a maximum value of £50,000, and has been targeted at smaller businesses to enable faster access to finance during COVID-19.
Details of the BBLS
Bounce Back Loans will be delivered similarly to the Coronavirus Business Interruption Loan Scheme (CBILS), through traditional lending providers such as banks. They are not available to public sector bodies, FE establishments (if already receiving grants), schools (if state-funded), insurers or banks.
- The loans are 100% guaranteed by the government, meaning that lenders will be more open to giving them. However, there are still conditions and due diligence that should be met.
- There are no payments for the first 12 months and any interest during this time is covered by the banks. After that time interest is limited to 2.5% per year
- The loan is to be paid over 6 years, but can be settled early with no penalties
- The scheme is being delivered by a network of accredited lenders including AIB, Bank of Scotland, Barclays, Yorkshire Bank, Danske Bank, HSBC, Lloyds, Natwest, Santander, RBS, TSB and the Co-operative Bank
- The Scheme will initially open until 4 November 2020, though the government may extend this if required
- Lenders are not permitted to require personal guarantees for the Bounce Back Loan Scheme
- If you have a loan with the Coronavirus Business Interruption Loan Scheme already, but it is less than £50,000 and you would like to transfer it to this scheme, then you are able to do this at any point before 4th November
Eligibility Criteria
The eligibility criteria for the Bounce Back Loans are as follows:
- Your business must be established or incorporated in the UK (or a tax resident in the UK)
- Your business must have been established prior to 1st March 2020
- Your business must have been negatively impacted by the coronavirus outbreak
- Your business must not be in the process of debt restructuring, bankruptcy, liquidation etc. at the time of application
- Your business must derive more than 50% of its income from its trading activity (charities and FE colleges excepted)
- You can not apply if you have already claimed under the CBILS, CLBILS or the COVID-19 Corporate Financing Facility
- You will use the loan only within the business and not for personal reasons
- Importantly, if you were classed as “a business in difficulty” as of 31st December 2019, then you will need to prove that you are complying with additional state aid restrictions and there may be restrictions placed on how much you are allowed to borrow and/or what you will do with the loan
What is a “Business in Difficulty”?
A business in difficulty is classed as any business categorised by one or more of the following criteria:
- If your business has been in receipt of rescue aid and the loan is still outstanding or the guarantee has been terminated
- If your business has received restructuring aid and is still in the process of a restructuring plan
- If you or your business has entered into collective insolvency proceedings
- If your limited company, partnership, limited partnership or unlimited liability Company has accumulated losses greater than half their share capital/capital in the last set of annual accounts
- If your company is not an SME but your book debt to equity ratio has been greater than 7:5 and your EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) interest coverage ratio has been below 1.0
Application Process
- 1. FIND A LENDER
You should first find a lender. Business owners are being advised to approach their existing providers first as this will be quicker and reduce administration requirements. You are permitted to approach other lenders if required however. A current list of lenders is available here and this will be updated as any further providers are added to the list. You should apply via the lender’s website directly.
2. FILL IN THE APPLICATION FORM
You will need to fill in a self-certifying application form with the lender. At this stage you may be asked for extra information such as details of your self-assessment tax return. Your application will be checked for eligibility and subject to checks including customer fraud, anti-money laundering and know your customer. There are some additional confirmations and consents that will be required during application and you should always seek legal/financial advice on taking out a loan and the associated regulation of the lender.
Please consider that demand is high and you may need to be patient while lenders receive and process application forms. High traffic at the same time to websites and online applications may cause technical delays.
3. AWAIT A DECISION
The lender will contact you directly to confirm whether your application has been successful. The application and transferral of funds process has been deliberately streamlined to make the process quick for applicants.
What is the difference between the CBILS, Start-Up Loans and the BBLS?
There are multiple options for government financial aid during this time, with variations in interest rates, repayment terms and eligibility criteria. You may be considering which of these makes the most sense for your business. We would always advise to speak to a financial professional to help understand the best options for your business. As starting information, there is some useful comparison data on this webpage from The British Business Bank.
Guidance and Support for Finance Decisions for your Business during COVID-19
The availability of these loans will be welcome news for many businesses, but making decisions around loans and other financial options is a serious matter, especially at a time when your business environment and market may be changing. If you are considering a loan you should always seek sound financial advice as to whether this is the best option for you.
There is helpful initial advice and guidance on how to manage your finance during this crisis, including a Business Finance Guide, available from the Institute of Chartered Accountants in England and Wales and The British Business Bank.
If you need to talk to one of the TTRB team please do not hesitate to contact us. During this time of remote working, please contact us initial via email at info@ttrbarnes.com and one of the team will pick it up.
