Small businesses can apply for new Bounce Back Loan
Following concern and criticism that some of the coronavirus support measures aren’t reaching their intended recipients quickly enough, if at all, a new loan scheme aimed at smaller businesses was announced this week.
Companies will be able to apply for a Bounce Back Loan of up to 25% of their annual turnover for amounts between £2,000 and £50,000. They’ll be both interest and repayment free for the first 12 months and will be 100% guaranteed by the government.
Designed to deliver a quick cash injection to the business, the application will be online with no viability tests or other onerous eligibility criteria that has adversely affected some of the other support schemes with the loans paid through a network of accredited lenders.
While there will be security checks, they will be less thorough than those for higher value loans of more than £50,000 or loans that require collateral.
One important point to note is that lenders require applicants to apply to the same bank that holds their business account. This means that traders without a business bank account might have difficulty obtaining one in the first instance but the banks would be happy to discuss setting one up.
Companies in receipt of the Retail and Hospitality Grant are eligible for both sources of funding. Businesses with existing loans can still apply but evidence of their other outgoings might be asked for along with proof that all debt repayments can be met.
The only hard exception is if you’re already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). Although if you have received a loan for £50,000 or less under CBILS then you could transfer it to the Bounce Back Loan Scheme by arranging it with your lender until November 4th 2020.
The loans will be available regardless of company structure so sole traders and partnerships should feel free to apply. Even companies that haven’t been in existence long can apply, especially if they are confident their recent financial records are strong.
The only prescribed organisations that are ineligible to apply are banks; insurers; reinsurers (but not insurance brokers); public sector bodies; state-funded primary and secondary schools.
One change that the government has made to their COVID-19 lending support packages is by changing the viability tests so that all banks will need to assess whether a business was viable pre coronavirus lockdown.
Any Business that was “undertaking in difficulty” – insolvent – as at 31 December 2019 won’t be considered eligible.
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.”
Although welcome, this financing is a loan not a grant and has to be repaid. Michael Izza, Chief Executive of ICAEW sounded a note of caution: “We’re pleased to see the government is listening to concerns and continuing to refine its business support measures where problems arise.
“These new loans should help speed up the process of getting money to small businesses, which our members tell us has been an issue until now.
“However, we still believe that taking on debt is not going to be suitable for some, especially smaller businesses, and we would like to see greater use of grants as part of the overall support package.”
The Bounce Back Loan is the latest in a range of measures announced to support companies struggling to survive under the coronavirus lockdown.
While all support is welcome, for some companies the unprecedented nature of the emergency and its long-lasting effects may prove to be insurmountable without specialist advice and help.
Contact your bank or accountant for assistance with the Bounce Back loan, but if you feel you need further advice on potential restructuring, then get in touch with us today.
We’ll arrange a convenient and free virtual initial consultation to get an understanding of where your business is right now and the unique challenges it faces and will have to overcome in the weeks and months ahead.