As part of the ongoing response to the Coronavirus pandemic, the government has announced a new scheme for the UK’s smaller businesses, the bounce back loan scheme, which will run alongside the existing Coronavirus Business Interruption Loan Scheme already available for businesses. This short note discusses the key points and aims of the scheme.
This government backed scheme is based on the existing CBILS but with a particular focus on allowing small businesses to gain access to a six year term loan from £2,000 up to 25% of business turnover, to a maximum of £50,000 (the government guaranteeing 100% of each loan). As part of the scheme, businesses will not be required to make any repayments within the first 12 months of the loan during which period the government will also pay any interest and loan related costs. Thereafter, the government will agree with its accredited lenders on a low standardised level of interest (currently set at 2.5% per annum) that will be applied for the remaining term of the loan. Although the term of the loan is set at 6 years, early repayment is permitted without early repayment fees.
The government has come under pressure to provide more support, particularly for Britain’s smallest businesses that have struggled to gain access to loans under the CBILS. This is because of the inability of these businesses to demonstrate, to the satisfaction of prospective lenders, the relevant business’s ability to cover the 20% of the loan that is not backed by a government guarantee (CBILS loans are only 80% backed by a government guarantee).
The bounce back loan scheme has been introduced to address the above concerns and aims to give smaller businesses easier access to finance. Businesses will only have to prove that they were viable before the outbreak of the Coronavirus pandemic whereas previously they also had to prove to lenders that they will be viable after the outbreak subsides – a challenge for most businesses given the economic uncertainty and lack of trading. This change, coupled with the 100% government-backed guarantee, is expected to increase the number of small businesses obtaining loans as more businesses will be able to meet the lending criteria. Lenders are not permitted to take personal guarantees and no recovery action will be taken against personal assets such as their main home or personal vehicle. In addition, lenders will no longer carry risk associated with loan defaults.
As with CBILS, the borrower still remains liable for the debt and the guarantee is provided to the lender not the business.
The government expects to have the scheme operational by Monday, 4 May 2020 and businesses can apply by completing a self-certification form via the government’s network of accredited lenders (criteria on the specific type of businesses eligible for the scheme has not yet been specified).
The scheme will have less lender checks and red tape than CBILS in the hope that it will enable smaller businesses to access finance more easily.
There are no fees in respect of access to the scheme for either businesses or lender.
The government has not yet provided full guidance on the operation of the scheme but it is expected that it will be released in the short term given the scheme’s intended start date.
For details of the other government backed loan schemes available and for general business related Coronavirus updates why not sign up to receive email notifications from us as and when new guidance is received from the government or other regulatory bodies by visiting our “Coronavirus (COVID-19) – Legal advice and guidance page“.
If you would like to discuss any of the loan schemes or have any other funding enquiries please contact a member of the Banking and Finance team.
This blog was co-written by Fred Chandler, Trainee Solicitor and James McNeil, Partner).