Small Business Bounce Back Loan Scheme


04 May
04May

The Chancellor announced the Small Business Bounce Back Scheme on 27th April 2020 and went live on Monday 4th May 2020.

Loans of between £2,000 and £50,000 that are 100% Government guaranteed are being made available by banks. 

The Bounce Back Loan Scheme is designed to help a wide range of businesses that were trading prior to 1st March 2020 and have been negatively impacted by COVID-19. It is not the same as The Start Up Loans Scheme, which is available to businesses that have been trading for less than two years, including newer businesses who began trading after 1st March 2020. 

Bounce Back loans remain payable by the borrowers, as the Government guarantee is to the lenders, not to the borrowers themselves.

The loans are for six years and further details are as follows:

  • Loans are between £2,000 and £50,000* (up to a maximum of 25% annual turnover), for 6 years
  • No repayments required for the first 12 months
  • No charges for early repayment
  • Interest rate fixed at 2.5% for the full loan period
  • Accredited lenders are only permitted to provide term loans under the Scheme
  • Simple online application to be submitted to accredited lenders
  • No forward looking test for applicant's viability
  • Standard fraud and anti-money laundering check to be made on application
  • Loans to be disbursed within 24 hours of approval
  • Scheme is initially open until 4th November 2020, with the government retaining the right to extend this
  • Lenders are not permitted to charge any fees for the loans
  • Applicants are required to self-declare they meet the eligibility criteria (see below) for the Scheme
  • Borrowers must confirm to the lender that the loan will only be used to provide an economic benefit to the business
  • Loans cannot be used for personal purposes

Eligibility

Applicants must be:

  • based in the UK
  • have been negatively affected by Coronavirus
  • not an ‘undertaking in difficulty’ on 31st December 2019 (see below)

Businesses that have already received funding under a different government-backed scheme cannot apply at this time.

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 1st March 2020 and has been adversely affected by Cronavirus (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 31st 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 a 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. British Business Bank
  • Bounce Back Loan Eligibility checker 
  • Bounce Back Loans FAQs.
  • Bounce Back Loans- accredited lenders.

* Illustration of how the loan amount is calculated:

If your annual turnover is £100,000, you could borrow £25,000 over 72 months with the first 12 monthly repayments of £0 and 60 monthly capital repayments of £416.67. Interest is charged each month against the amount outstanding at an annual interest rate (fixed) of 2.5%. This means the first payment of capital and interest would be £469 at month 13 (this represents the highest capital and interest repayment). Total amount repayable by you will be £26,589 (the total amount repayable excludes the Business Interruption Payment).  Lloyds TSB

The Government said at launch that: "The scheme has been designed to ensure that small firms who need vital cash injections to keep operating can get finance in a matter of days, and comes alongside the £6 billion awarded in business grants, supporting 4 million jobs through the job retention scheme and generous tax deferrals supporting hundreds of thousands of firms."

Businesses may be reluctant to take out loans even though the application process is much simpler and quicker than for the larger Government support schemes such as the Coronavirus Business Interruption Scheme.

Applicants will be asked to confirm that their business was not 'an undertaking in difficulty' as of 31 December 2019.

An 'Undertaking in difficulty’ is defined in Article 2 (18) of the Commission Regulation (EU) no. 651/2014 of 17 June 2014: 

(a) In the case of a limited liability company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments following due diligence by the selected financial intermediary), where more than half of its subscribed share capital has disappeared as a result of accumulated losses. This is the case when deduction of accumulated losses from reserves (and all other elements generally considered as part of the own funds of the company) leads to a negative cumulative amount that exceeds half of the subscribed share capital. For the purposes of this provision, ‘limited liability company’ refers in particular to the types of company mentioned in Annex I of Directive 2013/34/EU ( 1 ) and ‘share capital’ includes, where relevant, any share premium.

(b) In the case of a company where at least some members have unlimited liability for the debt of the company (other than an SME that has been in existence for less than three years or, for the purposes of eligibility for risk finance aid, an SME within 7 years from its first commercial sale that qualifies for risk finance investments following due diligence by the selected financial intermediary), where more than half of its capital as shown in the company accounts has disappeared as a result of accumulated losses. For the purposes of this provision, ‘a company where at least some members have unlimited liability for the debt of the company’ refers in particular to the types of company mentioned in Annex II of Directive 2013/34/EU.

(c) Where the undertaking is subject to collective insolvency proceedings or fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors.

(d) Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan.

(e) In the case of an undertaking that is not an SME, where, for the past two years:

(1) the undertaking's book debt to equity ratio has been greater than 7,5 and

(2) the undertaking's EBITDA interest coverage ratio has been below 1,0. Barclays Bank


What is the difference between CBILS and the Bounce Back Loan Scheme?-  British Business Bank

 CBILSBounce Back Loan Scheme
GuaranteeProvides the lender with a government-backed, partial guarantee (80%) against the outstanding guarantee facility balance (only principal). The portfolio cap has now been removed.

Provides the lender with a government-backed, full guarantee (100%) against the outstanding guarantee facility balance (both principal and interest), with no portfolio cap.
Guarantee fee for businesses

No fee.No fee.
Fee charged to lenders
for each facility
A fee is charged to lenders for each facility which makes
use of the Scheme.

No fee to lenders.
Types of facilityFacilities available include term loans, overdrafts, invoice finance and asset finance facilities.

Term loan only.
Maximum and minimum value of facilityFollowing the launch of the Bounce Back Loan Scheme the minimum for term loans and overdrafts will be £50,001. Lenders delivering asset or invoice finance facilities only will still be able to provide finance at less than £50,001.

The maximum value of a facility provided under the Scheme is £5m.

The minimum value of a facility provided under the Scheme is £2,000; the maximum is 25% of turnover up to a cap of £50,000.
Interest rate and fees set
by lender
Interest and fees are set by accredited lenders and will vary by lender.

The interest is set by government at 2.5% per annum. No lender-levied fees.
Repayment termsRepayment terms limited to a maximum of six years for term loan and asset finance facilities up to £5m. For overdrafts and invoice finance facilities, terms will be up to three years.

The government will make a Business Interruption Payment to the lender to cover first 12 months of interest and fees
payable.

Principal repayment holidays are at the discretion of the lender.

Repayment terms are six years, but there are no additional fees for early repayment charges.

The government will make a Business Interruption Payment to the lender to cover first 12 months of interest payable.

The borrower has a 12-month principal repayment holiday.
RefinancingRe-financing limited to a maximum of 20% of a lenders’ total CBILS lending.

There is no restriction on the total amount of the facility that may consist of refinancing.
Assessment of affordability and viabilityBusinesses must:

• Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic
• Self-certify that it has been adversely impacted by the coronavirus (COVID-19)
• Not have been classed as a ”business in difficulty” on 31 December 2019, if applying to borrow £30,000 or more.

All lending decisions remain fully delegated to lenders.

The borrower is required to self-declare they meet the eligibility criteria for the scheme.

Lenders do not have to assess a business’ affordability or viability. Lenders are not responsible for the borrower’s decision to borrow.
Borrower’s protectionAll existing statutory rights (for example, Consumer Credit Act and FCA protections) apply.Not subject to the many of the usual consumer protections that apply to business lending under £25,000. Borrowers do not have the benefit of protection and remedies that would otherwise be available under the Consumer Credit Act 1974.

Businesses eligibleAvailable to UK-based businesses with annual turnover of
up to £45m per year.

Smaller businesses from all sectors can apply for the full amount of the facility. However, fishery, aquaculture and agriculture businesses may not qualify for the full interest
and fee payment.

Available to most UK-based businesses, regardless of turnover.

If the business is a “business in difficulty” as of December 31 2019 then businesses in agriculture, aquaculture or fisheries may not qualify for the full amount; and the loan cannot be used for export-related activities.
Personal guaranteesNo personal guarantees for any facilities below £250,000.
Other forms of security may still be required by the lender.

Security, including personal guarantees may still be required
for facilities above £250,000 but they exclude a borrower’s
main home; and recoveries are capped at a maximum of
20% of outstanding balance.

No personal guarantees.

No recovery action can be taken over a borrower’s main home or primary personal vehicle.

For sole traders or partnerships, who do not have the benefit of limited liability, other personal assets may be at risk of recovery action.


By the publications team at: Contracts-Direct.com

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