Introducing the Bounce Back Loan schemePublished on 4th May 2020 2020-05-04T10:19:16+00:00 - Last update on 6th May 2020 2020-05-06T16:37:11+00:00
Chancellor Rishi Sunak has announced a new financial rescue initiative for Britain’s small businesses which sees the government providing a 100% guarantee on loans - and helps banks have the confidence to advance cash to businesses quickly.
The government recognises the depth of the crisis facing small businesses as a result of Covid-19.
The coronavirus epidemic - and the lockdown - have meant that, for many businesses, cash flow has all but dried up. With the bills still coming even if customers and cash are not, many businesses are getting close to the edge.
The government – and the UK economy – need those small businesses to survive, and the government has already created some schemes designed to help. The most well-known currently is CBILS, the Coronavirus Business Interruption Loan Scheme. CBILS supports a wide range of business finance products, including Term Loans, overdrafts, Invoice Finance and Asset Finance, and can make them available interest-free for 12 months.
But CBILS is proving far from perfect, and may not be the most appropriate solution for your business.
CBILS loans are provided on a commercial basis by banks and other lenders, with underwriting supported by the government. However, some lenders have their hands tied by their own lending criteria, and by their internal systems. They remain wary of lending under the scheme, and some others will expect very high rates of interest after the initial 12-month rate free period.
…and long delays
The banks and other lenders operating CBILS have been overwhelmed by the demand, and many are simply unable to cope with the numbers of small businesses contacting them for help. Most are doing their best, but with systems straining and staff numbers reduced, many are making long waiting times inevitable. Companies seeking a Coronavirus Business Interruption loan have complained about lengthy delays with the application process and the stringent qualification criteria.
We have heard reports of lenders taking a week to note down an applicant's initial details, and forecasting a further delay of up to a month before a decision can be provided.
In the current climate, these delays are simply too long. A business might easily become insolvent in the time waiting for the banks to act.
“The Coronavirus Business Interruption Loan Scheme has not worked for the small firms that make up 99% of our business community. The new bounce back facility offers real hope.”
Mike Cherry, chair of the Federation of Small Businesses
Introducing the Bounce Back Loan scheme
The Bounce Back Loan Scheme (BBLS) is a new scheme designed to enable businesses to access finance more quickly during the coronavirus outbreak – and overcome some of the shortcomings of CBILS.
Like CBILS, the scheme provides financial support to businesses across the UK that are losing revenue and seeing their cashflow disrupted as a result of the COVID-19 outbreak. Again, like CBILS, the actual funding will be provided by high street banks and other lenders on a commercial basis. The difference, however, is that the Bounce Back scheme can offer loans of up to £50,000 as opposed to the £5million available under CBILS, and should be a great deal simpler - and faster - to operate.
Like CBILS, the government will cover interest and fees on a loan for the first year. But the big difference is the interest rate – which, unlike the uncapped, and frequently punitive rates offered by some lenders under CBILS, will be capped at just 2.5%.
This means that finance secured under a BBL could cost much less than that under a CBILS loan. As businesses start to emerge from the crisis, these lower costs could make a big difference to their long-term viability.
KEY FEATURES OF THE BBL SCHEME
- Finance of up to £50,000 - loans range from £2,000 up to 25% of a business’ turnover
- No repayments for 12 months - the government pays interest and fees for the first year
- No security required - the scheme provides the lender with a full (100%), government-backed guarantee against the outstanding balance of the finance (both capital and interest)
- The borrower remains liable for the debt
- Fixed interest of 2.5% - all businesses will benefit from the same, affordable rate of interest
- Borrow for up to six years - the length of the loan is six years but early repayment is allowed, without early repayment fees.
Who can apply?
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.
These were, of course, the groups most likely to be daunted by the red tape and delay inevitable with CBILS – and, arguably, also the most in need of an immediate cash injection now.
Under the scheme, sole traders or a partner acting on behalf of partnership companies can apply for between £2,000 and £50,000, or a maximum of 25% of their turnover for up to six years.
Businesses start their loan repayments after 12 months and must have been trading on March 1 2020. They should also be viable. The official line from the government is that they must not have been an “undertaking in difficulty” as of December 31 2019.
The application should be simple, at least compared with CBILS. Applicants under the Bounce Back Loan Scheme will have to fill out a simple online form with details such as annual turnover, bank account number, the amount of credit sought, and how the business has been adversely affected by the virus.
There will be no need for security or personal guarantees – which has proved another difficulty with CBILS.
You can also convert an existing or future Coronavirus Business Interruption loan of £50,000 or less to a Bounce Back loan – which could mean making significant savings on you repayment commitments.
You do not have to apply to your existing lender and, as well as the big five high street banks, there are many alternative lenders - including SME specialists - involved. Some of these lenders are experienced in providing loans in short time frames, which could ensure that borrowers could receive the funding they need in a matter of days.
Finding out more
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 also know the lenders who are already enthusiastic about BBL.
Currently, the first step may be to approach your current lender - but if they are not participating in the scheme, or for any other reason unable to help you, we may be able to put you in touch with a lender that is.
We help secure all types of funding for all types of business. During the current crisis, we can help businesses find the most appropriate funding for them. But we don't stop there. We can help SMEs secure all types of business funding, both now and in the future. Call us now – our team is always ready to help.
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