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Bounce Back Loans
Last updated: 28th September 2020;
The BBL scheme has been extended to take applications until 30th November 2020.
Corporate Associate Solicitor, Jayne Croft has been looking at the Government’s new Bounce Back Loans.
On Monday 27th April, Chancellor Rishi Sunak announced a further package of financial aid to support small businesses through the Covid-19 pandemic.
There was initially speculation that the existing CBILs criteria would be revised to give smaller businesses a better chance of being accepted for a loan under the scheme rather than a new scheme coming into force.
The current CBILs scheme, whilst well meaning, has come under heavy criticism, with many businesses, particularly SMEs, being rejected and overall uptake being much lower than expected. One of the main issues affecting smaller businesses under the existing scheme was that while the Government agreed to guarantee 80% of loans granted under CBILs, many lenders felt that the remaining 20% was too risky in current circumstances.
In response to this the Chancellor has introduced the Bounce Back Loan Scheme (BBL) which is aimed specifically at smaller businesses and has a more relaxed eligibility criteria than CBILs.
The Scheme launched on Monday 4th May and here’s what you need to know if you’re thinking of applying:
- Eligibility Criteria – businesses must be UK based, negatively affected by coronavirus and not classed as an ‘undertaking in difficulty’ as at 31 December 2019;
- There will be no fees or interest in the first 12 months of the loan. Post 12 months, there will be a flat rate of 2.5% interest regardless of which lender is used;
- The scheme is 100% government backed and there is no expectation that accredited lenders will ask for personal guarantees (which was an issue when CBILs first went live);
- Applications for loans of up to 25% of turnover will be considered, up to a maximum of £50,000;
- BBLs will be delivered by lenders who have already been accredited by the British Business Bank for the CBILs scheme.
- Funds from successful applications are targeted to hit bank accounts within 24 hours of acceptance;
- Applications are via an online form on the websites of individual lenders. You can see the full list of lenders here.
As mentioned above, more and more lenders are being accredited each day. If your bank is not shown here, it is worth checking with them to see if they are in the process of becoming accredited;
- Repayments can be spread out across a period of up to 6 years;
- Applicants cannot have both a CBILs and a BBL but if you have had a successful application for a CBILs and wish to convert this to a BBL, this is possible. Similarly, if you get a BBL and you later need increased funding over the £50,000 cap, it is possible to roll a BBL into a CBIL under the scheme. Transferring can be done up to 4 November 2020 and whilst the guidance we have seen so far does not state this, we would suspect that the accredited lender would also need to agree to any transfers.
The BBL, like the CBIL scheme has essentially been rushed through to meet demand, and initial teething problems were inevitable. We understand that many businesses struggled to get onto the application pages when they first went live.
It is clear from the introduction of the BBL scheme that the Chancellor has listened to the concerns of small businesses and taking pro active steps to get cash where it is needed while we make our way through this uncertain period. On its first day, the BBL scheme received 70,000 successful applications and provided funds in excess of 2 billion pounds to businesses struggling due to the pandemic.
Most lenders are only offering loans to existing business customers, two that opened with open applications got swamped and closed their application portals within days.
Some lenders are giving the option to transfer business banking to them to allow businesses to access the scheme but setting up new accounts can take some time and for most people, the funds are needed now. This also begs a moral question. Is now really the time to be approaching customers to change banks?
Many small businesses are expected to take advantage of the BBL scheme and we would encourage our clients to do the same to ensure survival during this difficult time. If you have existing debt with a higher interest level, and don’t need a BBL for immediate cashflow/working capital reasons, it may be worth applying and using the BBL to clear the existing debt given the lower interest rate and initial 12 months of no payments.
If you’d like any advice on a BBL please contact a member of our Corporate team