The new Bounce back loan scheme launched by the Government today offers small businesses loans of between £2,000 and £50,000. These business loans have an interest rate of 2.5% available on terms of up to six years. There are no payments required and no interest charged in the first 12 months of the loans. Businesses can payback these loans at any time without incurring a penalty. As a result of these changes, the Coronavirus Business Interruption Loans Scheme (CBILS) has now increased its minimum loan value from £25,000 to £50,001.
Bounce back loans are 100% backed by the Treasury in the hope this will speed up lending to those businesses impacted by the Coronavirus pandemic.
Two significant areas of difference between a Bounce back loan and CBILS are the use of personal guarantees and affordability rules. Businesses that apply for a Bounce-back loan can do so without the need to use personal guarantees and will not need to meet any affordability requirements. However, they will be responsible for the decision to borrow the money and not the lender, this means that businesses will not have the usual consumer protections available to them for loans under £25,000. They will also not benefit from protection under the Consumer Credit Act 1974.
CBILS can include personal guarantees for loans above £250,000 and requires lenders to show the loan is affordable. This means businesses retain their statutory rights as they would for an equivalent form of borrowing. However, the process is more involved requiring evidence that the business is viable outside of the pandemic and that they can afford the monthly payments of this including any debt they already have. A commercial loans broker can help to identify the right lender and to handle the CBILS application process.
Here are some of the other key differences:
|Government guarantee||80% of the outstanding loans is covered||100% of the outstanding loans is covered|
|Types of lending available||Loans, business bank account overdrafts, invoice finance and asset finance.||Loans.|
|Loan amounts available||Minimum £50,001 for loans and overdrafts, £25,000 minimum for asset finance and invoice finance. Maximum of £5 million available.||£2,000 p to £50,000 (subject to a cap of 25% of the turnover of the business).|
|Interest rates and fees||Set by lenders.||2.5% per annum and no lender levied fees.|
|Repayment terms||Loans and asset finance up to six years. Overdrafts and invoice finance up to three years.||Up to six years.|
All lenders operating under the scheme should have an online application form. The aim is for these loans to be quick and easy to apply for and that lenders should be making fast lending decisions. There are two steps to apply:
The British Business Bank lists the lenders offering Bounce back loans. Lenders will have an online application form. This requires businesses to self-certify their eligibility for the scheme and to collect information used to identify your business, business directors and to ensure the bank can comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.
You may also want to contact the bank that you hold your business bank account with. They may be able to offer alternative help.
The British Business Bank has warned that lenders offering Bounce back loans may not be able to answer enquiries in branches and phone lines could be very busy.
The lender should review your application and let you know if this is successful. If you are rejected, you may apply to other lenders.
Eligible business must be based in the UK and established by 1 March 2020. They will need to generate at least 50% of their income from trading activity and show that this has been disrupted due to Coronavirus.
Businesses cannot have been in difficulty on 31 December 2019 and cannot be in bankruptcy or liquidation at the time of applying for a Bounce back loan.
Businesses that are already claiming under other Government schemes to support their business, such as CBILS or the Bank of England’s Covid Corporate Financing Facility Scheme cannot also hold a Bounce back loan. The only exception is if the Bounce back loans is being used to payback the other Government loan scheme.
Some business sectors are excluded from Bounce back loans, these include banks, insurers, reinsurers, public-sector bodies, further education establishments in they receive grant funding, state-funded primary and secondary schools.
The scheme currently has the following lenders, with the British Business Bank stating they are accepting applications from new lenders to be come accredited to the scheme.
The scheme is currently available until 4 November 2020, the Government has the option to extend this.
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