Small businesses have found it very difficult to borrow from their banks since the start of the Coronavirus crisis. To combat this, the government has introduced Bounce Back Loans.
The full detail is available on the Business Bank website including a list of the banks participating, which is being updated as new banks are accredited.
What is a bounce back loan?
The loans are for amounts between £2,000 and £50,000 and business owners can self-certify on a short form to confirm they are eligible and receive the funds within 48 hours.
The key features are:
- Borrow from £2,000 to £50,000 (up to a maximum of 25% of turnover).
- Fixed six year repayment term.
- No early repayment charges
- Fixed interest rate of 2.5%
- 12 month capital repayment holiday.
- Interest free for first 12 months (Government pays interest)
- No personal guarantee required.
The points we wanted to highlight to you are:
Bounce Back Loans are available to all businesses (including ltd co’s, sole traders and partnerships) who are:
- Based in the UK
- Negatively affected by coronavirus
- Not an ‘undertaking in difficulty’ on 31st December 2019.
You need to complete an application form for your bank, this is effectively a self-certification that you meet the criteria. Currently banks are only offering this to their own customers, if you don’t currently use one of the available banks, do keep checking the list as they may be added.
The eligibility questions should be fairly obvious to answer but if you are uncertain whether you are an ‘undertaking in difficulty’ you will need to have a look at your accounts dated on or before 31st December 2019. If the ‘net assets’ or total at the bottom of your balance sheet is positive, then your accounts should qualify you for for a loan. If you want to check this with us, give us a call.
You will also need your turnover (so they can check that you are not claiming more than 25%). Again this will be on your accounts, although some banks are asking for your calendar year turnover to December 2019.
We have also seen some banks rejecting CBILS applications as they do not consider the business to be negatively affected by coronavirus. Thankfully the BBL’s appear to be based on the customers own judgement of this. This seems fair as many businesses are affected, not just those that have been forced to close and we are cautioning businesses to consider the long term impact of this as well as the short. So although some businesses are still trading they may have debtors who aren’t paying or perhaps they have good cash reserves, but will experience a drop in work over the next few months and run out of cash.
It has been very difficult for small businesses to access loans to support their businesses, they have also been hit hard by a lack of support, particularly for limited company owners. Loans are not an ideal solution to this but at least if the funds can be accessed easily and cheaply this is a much improved offering than previously made available to small business owners.