From today (4th May 2020), businesses in the UK can apply for “bounce back” loans of up to £50,000 government-backed credit to help with the impact of the coronavirus on their short-term cash position.
Who can apply and what are the terms?
Whilst aimed at small businesses, businesses of any size can apply. To be eligible a business must have been trading on 1st March 2020 and must not have been an “undertaking in difficulty” as of 31 December 2019. Under the scheme, businesses can borrow between £2,000 and £50,000 (up to a maximum of 25% of their turnover) for a period of up to six years. The government will cover interest and fees on the loan for the first year and the subsequent interest rate will be 2.5 % on any outstanding capital balance, after the first year. The capital element is expected to be repaid in full over the loan period with an initial 12-month payment holiday being offered.
How is a loan obtained?
The same 50-plus lenders accredited by the British Business Bank (BBB) to provide credit under the coronavirus business interruption loan scheme (CBILS) are also expected to offer bounce back loans.
In contrast to the CBILS however, applicants under the bounce back loan scheme will have to fill out a simple online form which will ask for details such as annual turnover, bank account number, the amount of credit sought, and whether the business has been adversely affected by the virus. There is also no personal guarantees.
Do I have to use my current bank or lender?
Applicants do not have to apply with their existing lenders or banks. While the big five banks are likely to be responsible for the majority of lending, there are likely to be plenty of alternatives. These are expected to include peer-to-peer platforms and SME lending specialists.
How quickly will lenders make a decision and provide the money?
Businesses who apply to a lender with whom they already have a business account should expect to receive the funds within days. For businesses applying through new accounts, or approaching a new lender, it will take slightly longer.
How long is the Bounce-back Loan Scheme available for?
Applications to the scheme are currently available until the 4th November 2020, however, the Government has the option to extend this.
What if a business has applied for funding under the CBILS?
Businesses can convert an existing or future coronavirus business interruption loan of £50,000 or less to a bounce back loan. As the bounce back loan terms are more favourable than the CBILS this is likely to be the preferred option. Businesses with CBILS funding over £50,000 will not be eligible for both schemes. Businesses who were previously declined under the CBILS are also eligible to apply providing they meet the bounce back scheme criteria.
What will happen if a business cannot afford to repay the bounce back loan?
Banks will chase borrowers who default in the normal way, seeking to seize property or other assets. If they cannot recover the money, they will approach the BBB and activate the government guarantee.
For further information and to apply click here.