The Bounce Back Loan Scheme

Following extensive lobbying, the Government has acknowledged the necessity for substantial support financially for businesses across the UK who had been struggling to access the CBILS loan scheme. On 27th April, the Chancellor announced intentions to introduce the Bounce Back Loan Scheme to support small and medium-sized businesses borrow between £2,000 and £50,000.

What is the Bounce Back Loan Scheme?

The scheme has been put in place to provide a ‘fast-tracked’ lending of between £2,000 and £50,000 to smaller companies and businesses. The Government guarantee loans up 100% of the money borrowed. Those eligible can borrow 25% of their turnover up to £50,000 (eg. if sales are £75,000 per annum, the maximum loan is £18,750). The loan term is 6 years – no overdrafts/invoice finance, with an interest rate of 2.5%.
However, the Government will pay the first 12 months of interest along with there being a capital repayment holiday for the first 12 months. The scheme is quick and easy to apply for with only 7 questions. Businesses can self-certify to qualify for the scheme based on the criteria of eligibility below.

Eligibility

It must be a going concern and have a solvent balance sheet, but the criteria to qualify for a Bounce Back Loan is much less onerous than CBILS with only three to meet:

1. The company is based in the UK;
2. The business has been negatively affected by the coronavirus;
3. The company was not an ‘undertaking in difficulty’ on 31 December 2019, or is less than three years old with early trading losses not yet recovered*.

* The bank will need to be satisfied that businesses under three years old with early trading losses not yet recovered, still meet their other lending criteria.

What is an ‘Undertaking in Difficulty’?

Undertaking in Difficulty stems from EU state aid regulations, likely to be one used by HMRC for Enterprise Investments Scheme (EIS) rules. Any company is ‘in difficulty’ when it meets the criteria for insolvency under the Insolvency Act 1986, such as:

• the company is unable to pay its debts as they fall due;
• the balance sheet test – where the value of assets is less than its liabilities (including its contingent prospective liabilities)

If you have made losses greater than profits, then you are likely to be an undertaking in difficulty if you have funded the losses with loans.

For more information visit the Government website – https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan

Together, we will get through these extremely tough and unprecedented times. Stay strong, support one another.