Coronavirus Bounce Back Loan
On 27 April 2020 the Chancellor of the Exchequer announced plans to offer fast-tracked loans of up to £50,000 to help small and medium-sized businesses affected by the Coronavirus pandemic through a new Bounce Back Loan scheme. In this article Karen Davies, Bridget Juckes and Paul Hardman, all specialists in our Commercial & Corporate Law team, consider the new scheme.
Coronavirus Bounce Back Loan Overview
The Bounce Back Loan scheme is intended to help small and medium-sized businesses borrow between £2,000 and £50,000 and access the cash within days through a network of accredited lenders.
The loans will be 100% guaranteed by the UK Government and there won’t be any fees or interest payable for the first 12 months.
The term of the loans will be up to 6 years and the Government will work with lenders to agree a low standardised rate of interest for the remaining period of the loan.
This scheme will launch on 4 May 2020 and further information will be published by the Government in due course.
Eligibility for the Coronavirus Bounce Back Loan
Your business will be eligible if:
- it is based in the UK;
- has been negatively affected by coronavirus; and
- was not an ‘undertaking in difficulty’ on 31 December 2019.
Exclusions to the Coronavirus Bounce Back Loan
However, the following businesses are not eligible to apply:
- banks, insurers and reinsurers (but not insurance brokers);
- public-sector bodies; and
- state-funded primary and secondary schools
You cannot apply if you are already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). But if you have already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, you can arrange this with your lender until 4 November 2020.
Since announcing CBILS in March, which offered an 80% UK Government backed guarantee to the lender, Rishi Sunak faced pressure to amend the scheme to help smaller businesses who were likely not to be accepted by lenders for the 20% exposure. Despite the recent announcement of the Coronavirus Future Fund which offers to help companies who had previously raised at least £250,000 in equity investments, the smallest of businesses still fell outside Government support from these schemes.
It is clear the Government intends to support all businesses which is why we now welcome the arrival of the Bounce Back Loan scheme.
The focus of the Bounce Back Loan scheme is the size of the loan rather than turnover of the business (although there are as yet unconfirmed suggestions that the loans may be capped at 25% of annual turnover). As the loans are being 100% underwritten by the Government, businesses will likely only require minimal credit checks from lenders. The FCA recognises that, currently, the need to manage the risks of fraud and money laundering should be balanced against the need for the fast and efficient release of fund to businesses under the CBILS and BBL.
No fees or interest is due for the first year, so the scheme looks like it will be useful for a large number of businesses. The scheme is set up to provide cash within days of the application being approved which should hopefully address businesses’ short-term needs as we await the Government’s plans to ease restrictions.
If your business needs more than £50,000 to trade through the Coronavirus pandemic, the Bounce Back Loan scheme is not for you. You may find our information on the Coronavirus Business Interruption Loan Scheme and Future Fund helpful.
Our Corporate and Commercial law teams in Bristol and London specialise in advising SMEs. If you are looking for legal guidance on the Coronavirus Bounce Back Loan scheme please contact:
Paul Hardman – 0117 906 9425 – email@example.com
Bridget Juckes – 0117 906 9260 – firstname.lastname@example.org
Karen Davies – 0117 906 9238 – email@example.com
This guidance is correct as of 29 April 2020. We will produce further comment once full and final details of the Bounce Back Loan scheme are published by the UK Government.
Please note that in relation to the UK Government’s response to the coronavirus pandemic our advice is based on the UK Government’s announcements about changes it intends to make to the law. The situation regarding the pandemic and the UK Government’s response to it is changing fast and in consequence the content of any new or changed law may differ from that anticipated.