29th April 2020

“Quick and easy” Bounce Back Loans of up to £50,000 to be made available to businesses from 4th May

In response to feedback that lending under the CBILS initiative has been too slow and too complex for many of its applicants, the Government has now announced preliminary details about a new fast-track “Bounce Back” loan scheme that is due to go live on May 4th. It is promised that these loans, which will be up to £50,000, will be “quick and easy” to apply for and that eligible applicants should receive funds within a few days of submitting an application. Please note that the details below are provisional and details may change as further announcements about the scheme are made.

Details available so far:

  • Loans will be between £2,000 and £50,000 but capped at 25% of turnover.
  • In order to expedite the application process, the Government will provide a 100% loan guarantee to the lenders providing the finance (this is higher than the 80% guarantee extended under CBILS).
  • The loans will be interest free for 12 months and have no arrangement fees.
  • Loan terms will be up to 6 years.
  • No repayments will be due during the first 12 months.
  • The government is working with lenders to ensure that the loans have a low standardised level of interest after the interest free period.

Eligibility:

Loans are available to businesses based in the UK that:

  • Have been negatively affected by coronavirus.
  • Are not a bank, insurer, reinsurer, public-sector body or state funded primary or secondary school.
  • Are not already claiming under CBILS. However, if a business has already received a loan of up to £50,000 under CBILS this can be transferred into the Bounce Back Loan scheme.
  • Were not an ‘undertaking in difficulty’ on 31 December 2019 (see below).

What is an “undertaking in difficulty”?

This can be a complex area. Within its Frequently Asked Questions page, the British Business Bank sets out the relevant definition for CBILS loans, which we assume will also be relevant for the Bounce Back Loans. This is copied across as follows –

A “business in difficulty” is one that, as at 31 December 2019, had:

  • accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies its capital; or
  • started, or had fulfilled the criteria to be put into, collective insolvency proceedings; or
  • previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated); or
  • received restructuring aid, and was still under a restructuring plan; or
  • (where it does not meet the SME criteria) has fallen below solvency ratios for the previous two years.

The FAQs go into more detail on the subject here.

How do businesses apply?

Unfortunately details are not yet available on which lenders will be able to access the scheme. Although the Chancellor has promised that there will be no forward-looking tests of business viability, no complex eligibility criteria and just a simple, quick, standard form for businesses to fill in.

It is likely to be those lenders already accredited by the British Business Bank which will have the ability to deploy the Bounce Bank Loan products. Should this prove to be the case, we would recommend that clients check the accredited lender page of the British Business Bank website to confirm their banks status (here). We note that new lenders are being approved and added to this on a regular basis. Given the anticipated demand for these loans, it is likely that the quickest way to access the finance will be through an existing banking relationship.

The expectation is that the application form will be made available on each accredited lenders website shortly.

Overall

We expect many of our clients will welcome this initiative, and it will inevitably be in high demand once launched on Monday, 4th May. Where businesses (particularly smaller companies) have struggled to access CBILS, the Bounce Back Loans should provide a much quicker and easier route to source finance on beneficial terms. Banks will also no doubt be very supportive of the scheme, as it will allow them to make much faster lending decisions and really help those businesses in need. Whilst there are many positives, please do remember that this is a debt product which must be repaid, and therefore it should be carefully considered by applicants.

We will update this note as further details about the Bounce Bank Loans are made available.

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