New "Bounce Back" Loans for Small Business

A raft of measures have been announced over the past 6 weeks to assist businesses through the Covid-19 pandemic.

Amongst one of the first schemes to be announced was the Coronavirus Business Interruption Loan Scheme (CBILS). Though the scheme has been open to applications for a few weeks the acceptance rate has been relatively low. The reasons for this have been varied but chiefly revolve around the requirement for a business to demonstrate not only a successful trading history but also their ability to service the repayment of the loan in the long term. Whilst due diligence is of course very important in assessing the ability of a borrower to repay their loan, the volume of information required to make an application has been cumbersome for many businesses and has slowed the speed at which applications can be processed.

To address these twin issues of speed and complexity, the Chancellor, Rushi Sunak, yesterday announced a new loan scheme aimed at smaller businesses with a key focus on speeding up the application process and reducing the complexity of information required, which it is hoped will allow small businesses to access loans much more quickly. 

These new loans, dubbed “Bounce Back” loans are tailored and targeted towards smaller businesses with very immediate cashflow requirements and who perhaps lack the time and resources to prepare detailed forecasts and commentary required to support more traditional business loan applications.

Instead they have some key features which in theory will make them easier to apply for, quicker to approve and in turn to get cash to the businesses that need them in a far more effective way.

Key features

The key features of these new loans are as follows:

• The loans are 100%  Government-backed, eliminating bank exposure to risk of default and speeding the approval process
• The loans are capped at £50,000 or 25% of annual turnover, whichever is lower
• No repayments are due during the first 12 months
• All fees and interest for the first year will be met by the Government
• A quick and simple application process with no complex criteria or forecasting required
• For most firms, loans should arrive within 24 hours of approval
• Applications will open from Monday 4th May 
• Available to Limited Companies, Partnerships and Sole Traders
• Businesses classed as an “undertaking in difficulty” on 31 December 2019 will not be eligible, though at this stage the criteria for this is unknown

The scheme is delivered by 40 accredited lenders and it is highly likely these lenders will be the same providers as the CBILS loan scheme. We would expect further information to be published in the coming days and as ever please do contact us if you have any questions.

Whilst at this stage we do not know the full details, if this scheme is as simple and straightforward as it appears to be, it may provide helpful cash-flow in the months ahead.

References

HMRC announcements here https://www.gov.uk/government/news/small-businesses-boosted-by-bounce-back-loans

It is likely further information will be available at the British Business Bank website in the coming days which you can find here https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/

Please review our previous updates https://www.watsons.co.uk/covid-19