NEW: Bounce Back Loans
Smaller businesses can apply for new Bounce Back Loans up to a maximum of £50,000, or 25% of turnover, with the government paying the interest for the first 12 months.
These will be available from 9am on Monday, 4th May. There will be no forward-looking tests of business viability, just a simple, quick, standard form for businesses to fill in. The government will support lending by guaranteeing 100% of the loan.
What is the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme is a new scheme introduced to help smaller businesses impacted by coronavirus (COVID-19). It aims to assist those businesses to borrow between £2,000 up to 25% of a business’ turnover (the maximum amount available is £50,000).
Government will cover any interest payable in the first 12 months through a Business Interruption Payment to the lender, and lenders will benefit from a 100% government-backed guarantee.
The government has set the interest rate for this loan at 2.5% per annum and the repayment term is fixed at six years. No repayments will be due during the first 12 months. Businesses remain 100% liable to repay the full loan amount, as well as interest, after the first year.
The Scheme will be delivered through a network of accredited lenders.
Am I eligible?
The Scheme is open to most businesses, regardless of turnover, who meet the eligibility criteria and who were established on or before 1 March 2020. Borrowers are required to declare, amongst other things, that:
- The business is engaged in trading or commercial activity in the UK at the date of the application, was carrying on business on 1 March 2020 and has been adversely affected by coronavirus (COVID-19).
- The business (and any wider group of which it is part) has not already received a Bounce Back Loan Scheme facility.
- The business (and any wider group of which it is part) has not yet obtained a loan through either the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, or the Covid Corporate Financing Facility, unless that loan will be refinanced in full by the Bounce Back Loan Scheme facility.
- That the business is a UK limited company or partnership, or tax resident in the UK
- The business is not a bank, building society, insurance company, public sector organisation, state-funded primary or secondary school, or an individual other than a sole trader or a partner acting on behalf of a partnership.
- Whether or not the business was, on 31 December 2019, a “business in difficulty” and does not breach State aid restrictions under the Temporary Framework; and if it was a “business in difficulty” then it must confirm it does not breach de minimis State aid restrictions and will not be used to support export-related activities.
- At the time of submitting their loan application, the business is neither in bankruptcy, debt restructuring proceedings, liquidation or similar.
- More than 50% of the income of the business (together with that of any member of any group of which it is a part) is derived from its trading activity. This confirmation is not required if the borrower is a charity or a further education college.
- They will use the loan only to provide economic benefit to the business, and not for personal purposes. They have understood the costs associated with repayment of the loan and that they are able and intend to complete timely repayments in future.
The application form also requires confirmations to be given in relation to losses that may be incurred, impact on credit rating, financial risk to personal assets (other than primary residence and primary personal vehicle), reduced consumer protection provisions, data protection consents and that lenders will not assess affordability. Borrowers are advised that they should seek independent legal advice if they are in any doubt about the consequences of the loan agreement not being regulated by the Financial Services and Markets Act 2000 or the Consumer Credit Act 1974 or any other aspect of taking out a loan.
For some businesses, who self-declare as being a “business in difficulty” on 31 December 2019, there may be restrictions on the amount of finance they are allowed to borrow and what they can do with the loan .
How do I apply?
The Scheme will be available through the British Business Bank’s accredited lenders. A list of lenders is available here .
Businesses will be required to fill in a short online application form and self-declare that they are eligible for the Scheme.
In the first instance, businesses, where possible, should approach their own Bounce Back Loan Scheme accredited provider. They may also consider approaching other Scheme accredited providers if they are unable to access the finance they need or if their existing provider is not accredited to provide loans under the Scheme.
How long is the scheme open?
The Scheme is intended to be a temporary response to the unprecedented challenges to businesses as a result of coronavirus (COVID-19). The Scheme will initially open until 4 November 2020, with the government retaining the right to extend this.
How much can I apply for?
Businesses can apply for between £2,000 up to 25% of their turnover. The maximum loan available under the Scheme is £50,000. The government will cover the interest repayments for the first 12 months.
The government-backed guarantee on the loan is a guarantee to lenders. Businesses remain 100% liable to repay the full loan amount, as well as interest, after the first year.
How long will it take me to get the funds?
The Scheme has been designed to enable businesses to access finance quickly. Businesses are required to complete an online application form, which is expected to be assessed by their lender within a matter of days.
In some instances, the lender may ask you for additional information, such as an HMRC self-assessment tax return. Eligible companies will be subject to standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
What products are available under the Bounce Back Loan Scheme?
Accredited lenders are only permitted to provide term loans under the Scheme. The Scheme is targeted at supporting those businesses who need access to finance quickly and, therefore, requires lenders to offer a standard product.
For those seeking finance above £50,000, the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, or the Bank of England’s Covid Corporate Financing Facility scheme may be suitable.
Businesses seeking asset or invoice finance under £50,000 may be able to use existing accredited lenders under the Coronavirus Business Interruption Loan Scheme.
When do I have to start repayments?
The borrower is 100% liable for repaying the loan and any interest. The government will cover interest payable to the lender for the first 12 months. The borrower will then need to make full repayments (the loan and any interest) up to the end of the six-year term, as per their arrangement with the lender.
What fees and interest will I be required to pay?
The government has set the interest rate for this facility at 2.5% per annum. Lenders are not permitted to charge any fees.
What term can I borrow this over?
Loans under the Bounce Back Loan Scheme are available over a fixed six-year term
How much am I meant to repay?
Businesses are not required to make repayments for the first 12 months but will still have to repay the loan and any interest after 12 months.
Can I repay early?
Early repayment is permitted at any stage, without early repayment fees.
What checks will I be subject to?
Applicants are required to self-declare they meet the eligibility criteria for the Scheme. Eligible companies will be subject to standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
What protections do I have under the Bounce Back Loan Scheme?
For lending outside the Bounce Back Loan Scheme, the Consumer Credit Act ordinarily requires lenders to provide sole traders, small partnerships and unincorporated associations seeking finance up to £25,000 with information before a loan is granted, and to provide further information throughout the course of the agreement. If the lender does not comply with these rules, they ordinarily lose their ability to collect repayments on the loan.
However, in order for the application process to be as fast as possible, those provisions of the Consumer Credit Act will not apply to the Scheme, although not all protections will be removed. Lenders will be required, under the rules of the Bounce Back Loan Scheme, to provide relevant information to businesses; and the collection of these loans will be regulated, meaning that, should businesses encounter financial difficulty, lenders will have to comply with relevant regulations.
What can I use the loan for?
The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.
If the business was a “business in difficulty” on 31 December 2019, then a loan under the Scheme is not permitted to be used for export-related activities.
There are no limits on the amount of the facility that can be used for refinancing.
What happens if I find I’m struggling to repay the loan?
You should talk to the lender if you are experiencing financial difficulties and they will have standard processes in place to support customers in those circumstances.
Lenders are not permitted to require personal guarantees for the Bounce Back Loan Scheme.
For sole traders or small partnerships, who often risk their personal assets when borrowing, the terms of the Bounce Back Loan Scheme means no recovery action can be taken over a principal private residence or a primary personal vehicle.
Do you support all businesses?
The Scheme is open to most UK businesses, regardless of turnover, who self-declare they meet the eligibility criteria. For some businesses, who self-declare as being a “business in difficulty” on 31 December 2019, there may be restrictions on the amount of finance they are allowed to borrow and what they can do with the loan.
Can I apply for a CBILS facility as well as a Bounce Back Loan Scheme facility?
A business is not able to take out a Bounce Back Loan Scheme facility if they have been approved for a CBILS facility, and vice versa.
However, a business that has a CBILS facility can apply for a Bounce Back Loan Scheme facility if the Bounce Back Loan Scheme facility will refinance the CBILS facility in full. All accredited lenders who have approved CBILS loans so far will allow customers to refinance their loan into the Bounce Back Loan Scheme where appropriate, however, borrower protections under these schemes differ, and businesses should discuss these with their lender.
What is the difference between Start Up Loans and the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme is designed to help a wide range of businesses who were trading prior to 1 March 2020 and have been negatively impacted by COVID-19. The Start Up Loans Scheme is available to businesses who have been trading for less than two years including newer businesses who began trading after 1 March 2020.
The Start Up Loans Scheme supports these individuals by offering access to affordable government-backed finance of between £500 and £25,000 per owner (limited to £100,000 per business), at a fixed 6% interest per annum.
The Start Up Loans Scheme provides access to support during the application process, including help to create a business plan, as well as post loan support and mentoring which is provided by the Scheme’s delivery partners.
Businesses who were trading prior to 1 March 2020, are less than two years old and have been negatively impacted by COVID-19 can, subject to full Scheme eligibility, consider applying for both a Bounce Back Loan and a Start Up Loan. Borrower protection differs under the schemes and businesses should consider carefully the type of finance they require.
Existing Start Up Loans customers are also able to apply to borrow under the Bounce Back Loan Scheme.
Is the loan available under the Bounce Back Loan Scheme a personal loan or a business loan?
A loan under the Scheme is a business loan. The terms of the loan are covered by the Scheme.
A lender may consider paying the funds into a personal current account if no business bank account is held, if the business has been satisfactorily evidenced.
Does this contribute to my State aid allowance?
If the business self-declares as not being a “business in difficulty” on 31 December 2019, then any previous de minimis State aid does not impact a business’ eligibility for the Scheme. Any aid received under the Retail, Hospitality and Leisure Grant and any Business Interruption Payment received under the Coronavirus Business Interruption Loan Scheme will count towards their total State aid allowance under the Temporary Framework. Businesses are required to self-declare that, since 19 March 2019, they have not received more than £711,200 in State aid under the State Aid Temporary Framework (or £106,680 in the case of fisheries and aquaculture businesses, or £88,900 for agriculture businesses).
If the business self-declares as being a “business in difficulty” on 31 December 2019, then additional de minimis State aid restrictions apply.