What is the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme (BBLS) is a new scheme introduced to help smaller businesses impacted by coronavirus (COVID-19). It aims to assist those businesses to borrow between £2,000 up to 25% of a business’ turnover (the maximum amount available is £50,000). The BBLS launched on 4 May 2020 and is due to be open until 4 November 2020.
- Up to £50,000 loan: Loans will be from £2,000 up to 25% of a business’ turnover or £50,000, whichever is lower.
- 100% guarantee: The scheme provides the lender with a government-backed, full guarantee (100%) against the outstanding facility balance, both capital and interest. It should be noted however that the borrower always remains 100% liable for the debt.
- Interest rate: The government has set the interest rate for this facility at 2.5% per annum
- Interest paid by government for 12 months: The government will make a Business Interruption Payment to the lenders to cover the first 12 months of interest payable, so businesses will benefit from no upfront costs.
- No principal repayments for first 12 months: Borrowers will not have to begin principal repayments for the first 12 months, thereafter capital will be repaid on a straight line basis.
- No guarantee fee for businesses or lenders to access the scheme.
- Finance terms: The length of the loan is for six years but early repayment is allowed, without early repayment fees.
- No personal guarantees: No personal guarantees are allowed, and no recovery action can be taken over a principal private residence or principal private vehicle.
The Scheme is open to most businesses, regardless of turnover, that meet the eligibility criteria and were established on or before 1 March 2020. Borrowers are required to declare, amongst other things, that:
- The business is:
- incorporated or established in the UK, or tax resident in the UK; and
- engaged in trading or commercial activity in the UK at the date of the application, was carrying on business on 1 March 2020 and has been adversely affected by coronavirus (COVID-19).
- The business (and any wider group of which it is part, defined by having a holding company at the top of their structure) is not already in the process of applying for or has not already received a loan through:
- the BBLS;
- the Coronavirus Business Interruption Loan Scheme,
- the Coronavirus Large Business Interruption Loan Scheme, or
- the Covid Corporate Financing Facility;
- unless that loan will be refinanced in full by the BBLS facility.
- The business is not a bank, building society, insurance company, public sector organisation, state-funded primary or secondary school, or an individual other than a sole trader or a partner acting on behalf of a partnership.
- Whether or not the business was, on 31 December 2019, a “business in difficulty” and does not breach State Aid restrictions under the Temporary Framework; and if it was a “business in difficulty” then it must confirm it does not breach de minimis State Aid restrictions and will not be used to support export-related activities.
- At the time of submitting their loan application, the business is not in bankruptcy, liquidation or similar.
- More than 50% of the income of the business (together with that of any member of any group of which it is a part) is derived from its trading activity. This confirmation is not required if the borrower is a charity or a further education college.
- They will use the loan only to provide economic benefit to the business, and not for personal purposes. They have understood the costs associated with repayment of the loan and that they are able and intend to complete timely repayments in future.
In the first instance, you should approach your own lender. You may also consider approaching other lenders if you are unable to access the finance you require. A list of accredited lenders is available on the British Business Bank website. New lenders continue to be added to this list as they are accredited by the British Business Bank.
Applications are made by way of a short online application form, which is available on the website of the accredited lender.
Companies who apply to a lender with whom they already have a business account should expect to receive the loan within days. For companies applying through new accounts, or which are approaching a new lender, it will take slightly longer, but banks said they would work to process these loans as quickly as possible.
In the week commencing 8 June 2020 over 782, 246 Bounce Back Loans have been approved to a value of £23.78 billion which seems to show that the scheme is working but is also illustrates just how much small and medium-sized enterprises (SMEs), the companies which the scheme is aimed at, are struggling as a result of the pandemic.
The BBLS is based on borrowers self-certifying their eligibility for the Scheme and requires confirmations in respect of the nature of the business, when it was operating, solvency, State Aid, other facilities received and that the business has been adversely affected by coronavirus (COVID-19). As with other schemes there is no definition of what it means for a company to be ‘adversely affected by coronavirus (COVID-19)”.
It should also be noted that the Government has determined that loans made under the Bounce Back Loan Scheme:
- do not benefit from the usual consumer protections that apply to business lending and you will not have the protections and remedies that would otherwise be available to you under the Consumer Credit Act 1974; and
- will not have credit or affordability checks conducted and lenders have no responsibility or duty of care for your decision to borrow.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Banking & Finance team at Cleaver Fulton for further advice or information.