On Monday 27th April, the Chancellor Rishi Sunak announced that, starting on the 4th May, small and medium sized businesses will benefit from a fast-track finance scheme, providing loans of £2,000 - £50,000 through Coronavirus Bounce Back Loans.
Through this new scheme, the government will provide a 100% guarantee to the lenders providing the loans. This goes over and above the existing Coronavirus Business Interruption Loan Scheme (CBILS) which has guarantees limited to 80% to the lender.
The scheme is designed to help small and medium sized business access much needed working capital, quicker than under the existing scheme, to support them with the effects of the Covid-19 pandemic.
The loans will be distributed through a yet unannounced network of accredited lenders, which will almost definitely include the high street banks and potentially some of the alternative finance providers, similar to the CBILS accredited lender network. These lenders are currently working around the clock to ensure they are ready for the 4th May start date.
Under the new loans, there will be no interest or repayments to make for the first 12 months and terms can be up to 6 years. The interest and payment holiday at the start of the loans should provide businesses with well appreciated breathing space for the duration of the lockdown period, as well as easing pressure on cash flow for businesses as they start to re-open and work towards business as usual.
Whilst the exact terms of the loan are yet to be determined, the government has advised that they are working with the lenders to agree a low rate of interest is charged to borrowers, which should be achievable given the guarantee provided by the government. The application process is promised to be a simple two page form completed by businesses online and submitted to the lender.
The government has placed a simple eligibility criteria around the loans with businesses needing to be UK based, have been negatively affected by the Coronavirus and not be “in difficultly” as of the 31st December 2019. The key detail which is currently unknown is the definition of “in difficulty” which will be applied within the application process.
As always, I expect there will be challenges and teething problems around the initiative as has been seen with the existing loan scheme that has been in place since the end of March. The lenders, particularly big banks, are not known for their speed of change in terms of new technology or underwriting and this scheme is promising both, so hopefully they can deliver on time to get much needed cash into small businesses.
Overall I think this is a positive scheme to assist small businesses, with further detail to be announced. However, business owners do need to be aware that, along with other government schemes and measures taken, this loan will have to start to be repaid in 12 months’ time. I would recommend any businesses looking to take out these consider the future repayment obligations that they will be putting on the business and have a discussion with their professional advisers to seek best advice and receive further updates as they become available from the government.
We have published an update on the Bounce Back Loan Scheme which can be read on our website here.