New Financial Measure- 'Bounce Back' Loan
Hi there,
I hope that you and yours are continuing to keep safe and well.
The purpose of this email is to let you know about the new, 100% Government backed, Business ‘Bounce Back’ Loan (BBL) that your business is able to apply for from today- Monday 4th May 2020.
As you will have likely heard, the original COVID-19 Business Interruption Loan (BIL) was poorly received and met with huge criticism. It is clear that though the Government had good intentions with the BIL, due to a number of factors it led to only a small number of businesses being successful in their application, and for the few that were successful it took weeks in some cases for the loan cash to actually hit their bank accounts.
Based on the feedback and criticism aimed at the loan, the Bounce Back Loan (BBL) has been introduced with the intention of releasing cash to businesses that need it, both quickly and without complication. The reason being, now the Government have guaranteed these loans to the value of 100%, as opposed to the 80% that was originally covered by the original BIL. In essence, the lenders that will offer this new loan will carry zero risk (as if the loan defaults, the Government will be liable should the money not be recovered from the defaulting business), and the Government (tax payers) will pick up the tab.
So, the key points and Q&A’s are below for you to digest:
Am I eligible for this loan?
In short, the majority of UK businesses will be able to apply for the loan. Successful applicants will meet the following criteria:
· Sole traders, partnerships and Limited Companies are all eligible for the loan
· Businesses must have been trading on 1st March 2020, and not have been in financial difficulty on 31st December 2019
What are the key points of the Bounce Back Loan?
· You can apply for up to 25% of your turnover- from £2,000 to £50,000
· Loan cash is aimed to be paid within days if you apply to the same lender that you already have a bank account with. You can of course apply to any of the other lenders (see below), but it may result in longer wait time for cash to be paid into your account
· Focused towards smaller businesses with fewer than ten employees
· Loan repayments not needed to be made until after twelve months and during this 12 month period there is NO interest
· However after twelve months, interest will be payable at 2.5% (this rate is expected to be lower than the BIL though- so see below) and loan repayments will need to be made
· The maximum loan term for the BBL is six years
· This scheme will remain open until AT LEAST 4th November 2020, and so do not feel pressured to apply for this loan straight away
How do I apply? Who should I apply with?
· The same banks that offered the BIL will also offer this loan
- See link for full breakdown https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/current-accredited-lenders-and-partners/
· Link to apply is at the bottom of the following webpage - https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan
I have already successfully applied for the BIL, or am in the middle of applying for it- can I still get the Bounce Back Loan?
· You can only receive ONE of the two Government backed loans
· If you were one of the minority that successfully applied for the BIL, you can convert the BIL to the BBL. The benefit of this is that it is likely there is lower rate of interest on the new BBL, and so will be more cost effective converting to the new loan scheme
· If you are in the process of applying for the BIL, you can either cancel the application and reapply for the BBL, or transfer this application to the BBL
What are the main differences between the Business Interruption Loan (BIL) and the Bounce Back Loan (BBL)?
Interest Rates
- BIL Set by lender, and therefore vary wildly
- BBL Standard rate of interest at 2.5%
Government Backing
- BIL 80% Explaining why certain lenders demanded personal guarantees and took such a huge amount of time to make decisions
- BBL 100%
Loan Amounts
- BIL MINIMUM of £50,001 and up to £5,000,000 (Note- the minimum has now increased significantly due to the introduction of the new loan)
- BBL Ranges from £2,000 to £50,000
Payment Terms
- BIL Loan is for six year term and only SOME lenders will allow no repayments for the first twelve months
- BBL Loan is for six year term with ALL lenders allowing twelve month payment holiday
Affordability/Viability
- BIL Comprehensive application process
- BBL Promoted as an easier application process, as lenders do not need to assess the affordability/viability (this is due to Government being 100% liable for these loans should they not be repaid to lender)
Though the Bounce Back Loan appears to tick all of the boxes in comparison to the Business Interruption Loan, only time will tell if the applications process and subsequent pay-outs are as smooth as advertised.
Please remember that we are here to help you through this in any way that we can; this remains an incredibly difficult time for all, and so should you have any questions at all (about this, or anything else) please get in touch with us so that we can discuss your specific circumstances in detail.
Best Wishes
Team Blue Skies