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Covid-19: Bounceback loan scheme for small businesses
1. What is the ‘bounceback’ loan scheme?
It is a new scheme for small and micro businesses who can, from 9:00 a.m. on Monday 4 May, apply for up to £50,000 of financing from their lender to help them through the Covid-19 crisis. Businesses can apply for a minimum of £2,000 to a maximum of one quarter of their last financial year’s turnover, with a cap of £50,000. The loans will be 100 per cent backed by the government, unlike under the Coronavirus Business Interruption Loan Scheme (CBILS) which is 80 per cent state backed.
2. Who is eligible to apply?
The scheme is aimed at small businesses, but the Treasury has not set a size limit on eligibility. Therefore, it appears that any business that wants a small loan quickly could choose to apply for a bounceback loan. It is understood that sole traders and partnerships as well as companies will be eligible as long as they were trading on 1 March 2020.
3. I already have a CBILS. Can I switch it to a bounceback loan?
It appears that businesses that have already obtained a CBILS loan for £50,000 or less may be able to switch it over to a bounceback loan, which will be 100 per cent government-guaranteed, rather than 80 per cent. There may be advantages of doing this.
4. If I obtain a bounceback loan will I also be able to apply for a CBILS?
It appears that a business that obtains a bounceback loan will later be able to convert it to a CBILS loan (and therefore take out an amount greater than £50,000) if the application to do so is approved by their lender. This will, however, involve satisfying more stringent lending criteria and it is likely that you will only benefit from 80 per cent government backing on the entire amount.
5. How much will a bounceback loan cost?
The government will cover interest and fees for the first twelve months, and businesses will not be required to repay any of the loan balance during that time. After that, interest rates will be “very low”, according to the Treasury, with a loan typically paid back over five years.
6. How do I apply for a bounceback loan?
Applications are expected to be around two pages long and will be submitted through an online form via your lender’s website. Only basic details will be required to verify the business exists and is eligible.
Company directors will be able to self-certify that the information they provide is correct and their lender then decides whether or not to approve the loan. Companies may be required to provide a tax return in a small number of cases.
7. How likely is it that I will be successful?
Banks will not have to absorb losses on loans taken out by businesses that later cannot repay the debt. If a business cannot repay, and the funds cannot be recouped through normal means, the state will take the loss, not the bank. Banks will not, therefore, have to carry out their normal full credit checks and procedures. One of the key stumbling blocks under the CBILS is that a business must be deemed “viable” by the bank to receive funding. How does a business provide solid forward financial projections given the uncertainty of the current situation? The bounceback loan is intended to deliver emergency funding to hundreds of thousands of businesses so that they are in a position to start back up again as soon as it becomes possible.
8. Will my home be at risk if I take out a bounceback loan?
If you are a company, you already have limited liability and the personal assets of directors are not therefore at risk. The Treasury says it is taking action to ensure that the primary homes and vehicles of sole traders and partners (who, unlike companies, do not benefit from limited liability) are protected from any debt collection proceedings.
9. How quickly will I receive money from the bounceback loan?
It is understood that money should be in a business’ bank account around 24 hours after an application has been approved. It is anticipated that the banks will be inundated with applications when the scheme first opens so there may be some delay simply due to the volume of forms they need to process.
Disclaimer: Nothing in the Legal Insights section and this blog is intended to provide legal or other professional advice and, if readers are interested, they should consider taking separate legal or other professional advice accordingly.
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