Chancellor Rishi Sunak exceeded our expectations this week by announcing a new loan scheme he described as “bounce-back” loans, aimed at supporting micro-businesses in the UK, to help them through the COVID-19 crisis.
Sunak’s aim is to speed up how quickly the smallest firms get access to cash. “I know some small businesses are still struggling to access credit – they are, in many ways, the most exposed to the effects of coronavirus,” Sunak said. “They will need extra support to get through this crisis. Some businesses will not want to take on debt… but for others loans will be a part of the answer.”
Andrea Reynolds, CEO of Swoop, welcomed the change. “We’re delighted to see the Chancellor responding to our concerns, and looking at how we can get funds to the businesses most in need as quickly as possible” she said.
In summary, what does this mean?
- Amounts – loans for up to 25% of turnover, a minimum of £2,000 and up to a maximum of £50,000
- Interest break – businesses will not pay interest on the loan for the first 12 months
- Attractive to lenders – lenders are provided assurance as the loans are backed by a 100% government guarantee
- Viability test – there will be no forward-looking eligibility requirements
- Speed – the Chancellor has signalled that funds should be available within 24 hours of approval
In more detail
The BBLS will allow businesses to apply for loans from £2,000 up to £50,000 by submitting a short online form, with funds deposited into bank accounts within 24 hours, the government has said. Businesses will be able to apply from 9am on Monday 4th May – and he promises there will be no complex eligibility criteria. Unlike the Coronavirus Business Interruption Loan Scheme (CBILS), which is only 80% backed by the Government, the ‘bounce-back’ scheme is 100% state-backed. In turn, this will result in a much quicker application process.
How do I apply and am I eligible?
You can submit your application through an online form which will ask for basic details to verify your company’s status and eligibility. This information must be provided by the company Directors to clarify that the information provided is correct. Your company may be required to provide a tax return.
The eligibility requirements for this scheme are that:
- the company must be based in the UK
- the company was not an ‘undertaking in difficulty’ on 31 December 2019
- the business has been negatively affected by coronavirus.
The definition of ‘undertaking in difficulty’, at the present time, hasn’t been qualified. There are various definitions of this, mainly stemming from EU state aid regulations.
We believe it’s likely that the same definition as the one HMRC uses in their EIS manuals will be applied, as follows:
In general, HMRC will regard any company as being ‘in difficulty’ when it meets the criteria for insolvency under the Insolvency Act 1986, such as:
- the company is unable to pay its debts as they fall due
- the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities (the ‘balance sheet test’).
Each lender may have their own interpretation of the criteria.
How does the BBLS differ from CBILS and can I apply for both?
The CBILS scheme allows for up to £5m per business whereas the BBLS allows for up to £50,000 per business. CBILS requires a lengthy application process with more rigorous checks.
It is not possible to apply for a CBILS and a BBLS as each firm can only take out one or the other form of loan.
It is understood that a company obtaining a BBLS should also have the ability to convert to a CBILS loan if approved by their lender. This switch would allow the company to take out a larger amount at a later date. Those who take out a ‘bounce-back’ loan will still be eligible for other direct government support.
A business that has a CBILS facility can apply for a Bounce Back Loan Scheme facility if the Bounce Back Loan Scheme facility will refinance the CBILS facility in full.
What will this scheme cost?
The government will pay the interest for the first 12 months and the loans are backed by a 100% government guarantee. Businesses will not be required to repay during this 12 month time period. Following this time period, interest rates will be 2.5% with a repayment period typically being over 5 years.
The primary existing loan scheme, CBILS, has been criticised because many companies were being rejected, or simply told not to apply as they were not eligible. One of the key issues is that a business must be deemed “viable” by a bank. Given the extraordinary economic circumstances caused by the virus and lockdown measures, a large number of businesses were simply unable to demonstrate viability.
For example, how could a catering company, reliant largely on summer events which have now been cancelled, demonstrate that it was “viable” going forward?
Mr Sunak reiterated on Monday that he wanted to preserve the productive capacity of the economy after the virus is contained. That means delivering emergency funding to hundreds of thousands of businesses so that they are in a position to start back up again as soon as possible. It is hoped that the new loan scheme will help facilitate that.
What to do now?
Register with Swoop. We’ll ensure you have all the required information together in one place – by integrating your bank account and financial software this should only take minutes. We’ll then match you with the most appropriate funder for your needs.
If you have any queries please call our Swoop coronavirus funding hotline on 0203 868 0364 (8am – 6pm, 7 days a week).
Keep up to date with changing circumstances and financial advice for your business.