Rishi Sunak hits back with Bounce Back Loans (BBLS) for those struggling SMEs that had been left out in the cold by CBILS
When the coronavirus hit the UK, no one could've expected the unprecedented measures that the Treasury would put into place for the majority of people, whether an employee or business owner. However, as these began to be rolled out, it became apparent that some of these measures were either extremely convoluted or difficult to obtain, and in most cases, both.
Enter the Bounce Back Loan Scheme (BBLS), designed in light of the CBILS lack of success by approximately half of those SMEs who applied for them, many others probably not taking up the offer because of the amount of hoops business owners had to jump through and the 50 page plus application forms, in some cases, that needed completing and submitting.
The BBLS is supposed to simplify the whole process but there are a few restrictions, namely:
- Loan borrowing amounts are from £2,000 to £50,000. However, business owners can only apply for up to 25% of their annual turnover and there is no indication on how this will yet be measured. This is conjecture, however, it would probably be on something tangible such as the last accounts and self assessments that were submitted to Companies House and HMRC resepctively, rather than current profit and loss reports - although as soon as we know more once the scheme opens on Monday, 4th May 2020, further information will be forwarded on;
- It is open to all SMEs based in the UK who have been negatively affected by coronavirus, but there will need to be some proof that your business was not an 'undertaking in difficulty' on the 31st December 2019. The only thing banks will need to assess is whether or not a business was viable pre COVID-19;
- If you're a bank, insurer and reinsurer (not an insurance broker); a public sector body or a state-funded primary or secondary school, then you're ineligible to apply.
However, for those of us that are eligible to apply by passing the above criteria, these loans are:
- 100% backed by the Government, so this will take the pressure off banks if a business owner defaults on their loan;
- Any fees or interest due in the first 12 months will be paid by the Government;
- Interest rates for the term of the loan will be low, expected to be capped at around 2.5% or 3%;
- Loan terms will be up to 6 years and repayments will not start until the first 12 months have passed.
Applications will be made extremely easy, a simple standardised form will be offered by those lenders who are happy to roll out BBLS on behalf of the Government and money should hit business accounts within a couple of days.
Those businesses who have already applied for CBILS, of which the loan amount is £50,000 or under and were accepted, will be able to transfer over to BBLS until 4th November 2020, but this excludes those who have successfully applied for the asset or invoice financing option of CBILS instead.
Is it wise to apply? Possibly. At the moment, no one is sure on what will happen, or how long the present situation will continue on for. Many advisors are suggesting that business owners make a claim regardless of their situation, just to make sure they have money should this situation continue for longer than expected. For some with existing loans, this could help; although loan terms are effectively extended, at least it would free up the cash that businesses are already repaying and in many cases, interest rates cut. For others, who may have struggled getting credit in the past, this may be a way of increasing their capital and allow them to market their business much more effectively. Whatever your circumstances, remember this is a loan, and will need to be repaid in the long term.
If you have any questions or would like to chat through concerns you may have, then please do contact us.
Rishi Sunak's letter to lenders on 1st May 2020