Bouncing back: Could a Bounce Back loan get your SME back on track?

The coronavirus outbreak and the lockdown which followed when the UK realised it was in the middle of a pandemic has been a worrying time for small businesses.

Businesses of all kinds have found themselves shut down or struggling to find customers. Burdened with stock that is becoming unsellable, and faced with a steady stream of bills for rent along with existing financial commitments, many believe they are looking at the end.

At Rangewell, we believe that it doesn't have to be that way – and we are pleased to announce an important new government scheme that will help if your business is caught in a cash crunch.

The government’s new Bounce Back Loan Scheme has been designed to make It easier for small businesses of all kinds to secure the funding they need.

Why do we need a new scheme?

There are already several government schemes designed to help struggling businesses. The best known is CBILS, the Coronavirus Business Interruption Loan Scheme. CBILS is the government’s existing small business credit programme, and it can support a wide range of business finance products, making funding easier to get.

But CBILS is proving far from perfect, and may not be the most appropriate solution for your business.

Costs can be high. There are no limits on what a lender can charge under the scheme and, in some cases, they may demand a very high interest rate.

What’s more, there can be long delays in processing the applications. Banks and other lenders operating CBILS have been overwhelmed by the demand, and with systems straining and staff numbers reduced, many are making long waiting times inevitable.

Companies seeking a Coronavirus Business Interruption Loan have complained about the delays with the application, the stringent qualification criteria – and those who have secured funding – the cost.

However, the new Bounce Back Loans are designed to overcome all the drawbacks – and make borrowing fast and easy.

Simple to use

Many small businesses have told us that they are struggling to obtain cash under the Coronavirus Business Interruption Loan Scheme.

With Bounce Back loans things could be very different. The older scheme required an extensive application process, security over business assets and, in some cases, personal guarantees from directors as well. Red tape and high costs seemed to be inevitable.

Bounce Back loans are geared more to the needs of the small business – and offer loans on extremely generous terms. Six-year loans of up £50,000 are free of all fees, and also interest and repayment-free for a year.

After that, interest rates will be just 2.5%, regardless of which lender provides the credit. Companies of any size can apply under the Bounce Back Scheme, but the new loans are really aimed at small businesses with fewer than 10 employees and at the UK’s 900,000 sole traders.

It means small business loans could be cheaper than ever before, and that businesses will find it easier than ever to acquire them.

You will not need to provide documentation to prove affordability. A short online application form is likely simply to ask you to confirm the fact that the loan value is no more than 25% of your 2019 turnover and that the business was not in financial difficulty on December 31, 2019.

Of course, banks will still do a little checking on the information that you provide, but the scheme means you are more likely to be accepted for the funding you apply for.  

There is a 100% guarantee on each loan to underwrite the sizeable risks that banks are being asked to take. As a result, some businesses are already taking the view that the scheme really can provide the financial answers they are looking for.

Do you need help identifying the most appropriate and affordable funding for your business? See how we can help you - whatever stage you're at in your funding journey

But are things really going to be as simple as they appear?

However, of course, things might not be as simple as the government and borrowers might wish. The scheme poses a huge new challenge for banks. Normally banks and other lenders approve about 20,000 small business loans each month, with some seasonal variations.

CBILS more than doubled the demand and banks were struggling to cope in a matter of days. The new scheme will, undoubtedly, increase the workload still further. There could be tens of thousands of new applicants for the attractive new terms on offer with Bounce Back Loans.

The chancellor has promised that borrowers will have money in their accounts in as little as 24 hours, but some banks are already suggesting that this might not be possible – although some already have online application systems designed to take only ten minutes to complete, with questions focusing merely on how much someone wants to borrow, turnover and some tick-boxes.

With an automated system, funds really could be in their accounts within 24 hours, as the chancellor has promised.

But the problem goes deeper than requiring bankers to put in some long hours to deal with a sudden influx of applications.

The low cost for credit is certainly attractive, but only the high street banks are likely to be able to afford to offer loans under it. 

These are, of course, the banks that have spent the last decade being cautious about lending in the aftermath of the financial crisis, which has often been blamed on their willingness to overlend. They now find that they are being asked to fund lending that may well be below the commercial cost, once the effects of defaults – which could be high – are factored in.

Borrowers remain entirely liable for the debt if they default. With no security against business or personal assets to call on, the banks may be left with a recovery process that could be very expensive for them.

Senior bankers are already demanding assurances that they will not be accused of reckless lending.

Despite the fact that Bounce Back Loans should be easy to obtain, banks may still be selective about providing them.

What should you do?

With the level of demand expected, several of the big banks - Lloyds, Natwest and Barclays  - have announced that they will only allow only existing customers to apply. They believe this is necessary to provide the necessary standards of service and that, by working with customers they already know, they can speed up approval processes and reduce the risk of fraud. Working with customers they already know is one of the few ways that banks can protect themselves under the scheme.

So, if you are able to get a loan from a bank which already has you as a customer, you could apply directly to them. If you are not a customer of a high street bank, you might need to contact us at Rangewell. 

We know the banks that will allow non-customers to apply and can help you secure the funding you need. As with any type of business funding, it is essential to get expert help. At Rangewell we can provide the support you need with any type of business funding, and we are ready to help you make the most of BBL.

We help secure all types of funding for all types of business. During the current crisis, we can often help to identify the most appropriate funding you need - whether that is by finding the BBL lender that is right for you and your business, or with some other kind of finance. We can help you secure all types of business funding, and as your business starts to recover, we want to work with you to ensure that you have the funding you need.

Call us now – our experts are ready to help you with any finance challenges your business is experiencing during the coronavirus crisis.