Finance · 4 May 2020

Bounce Back Loans Scheme opens for smallest UK businesses

Bounce Back Loan Scheme opens for smallest UK businesses on 4th May 2020.
Bounce Back Loan Scheme opens for smallest UK businesses on 4th May 2020.
  • Lenders under scheme can provide loans of up to £50k over six years
  • First 12 months of interest paid by government, then 2.5% pa interest
  • Repayments deferred for 12 months
  • Simple, standardised application form to speed up process

Following the Chancellor of the Exchequer’s announcement on 27 April, the Bounce Back Loans Scheme opens for applications from today (4 May 2020).

Delivered by lenders accredited by the British Business Bank for this scheme, Bounce Back Loans target small and micro businesses in all sectors[1], providing loans from £2k up to 25% of the business’ turnover with a maximum loan of £50k.

Providing lenders with a 100% government-backed guarantee and standardising the application form is expected to lead to a faster process with many loans becoming available within days.

Bounce Back Loan Scheme features

The Bounce Back Loans Scheme enables businesses to obtain a six-year term loan at a government set interest rate of 2.5% a year. The government will cover interest payable in the first year.

  • Up to £50,000 loan: Loans will be from £2,000 up to 25% of a business’ turnover or £50,000, whichever is lower.
  • 100% guarantee: The scheme provides the lender with a government-backed, full guarantee (100%) against the outstanding facility balance, both capital and interest. The borrower always remains 100% liable for the debt
  • Interest rate: The government has set the interest rate for this facility at 2.5% per annum, meaning businesses will all benefit from the same, low rate of interest.
  • Interest paid by government for 12 months: The government will make a Business Interruption Payment to the lenders to cover the first 12 months of interest payable, so businesses will benefit from no upfront costs.
  • No principal repayments for first 12 months: Borrowers will not have to begin principal repayments for the first 12 months, thereafter capital will be repaid on a straight line basis.
  • No guarantee fee for businesses or lenders to access the scheme
  • Finance terms: The length of the loan is for six years but early repayment is allowed, without early repayment fees.
  • No personal guarantees: No personal guarantees are allowed, and no recovery action can be taken over a principal private residence or principal private vehicle.

Eligibility criteria

Businesses from all sectors can apply for a facility. The business must self-certify to its lender the following:

  • Confirm it is UK-based in its business activity, and established by 1 March 2020
  • Confirm it has been adversely impacted by the Coronavirus (COVID-19)
  • Confirm it is not currently using a government-backed Coronavirus loan scheme (unless using BBLS to refinance a whole facility)
  • Confirm it is not in bankruptcy, liquidation or undergoing debt restructuring 

How to apply

Businesses should check the British Business Bank website to find out which lenders provide Bounce Back Loans.

Businesses will be required to fill in a short online application form on their lender’s website, which self-certifies whether they are eligible for a Bounce Back Loan facility. Eligible companies will be subject to standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks. Some State aid restrictions may apply to applications.

COVID-19 loan schemes 

The new Bounce Back Loans Scheme complements other loan schemes provided by the government to assist businesses during the coronavirus epidemic:

Coronavirus Business Interruption Loans Scheme (CBILS)

CBILS is a demand-led scheme offering lending to smaller businesses with turnover of up to £45m. Invoice finance and asset finance facilities are available from £1k to £5m, while term loans and revolving credit facilities are available from £50k to £5m (the lower limit for these has increased from £1k following the introduction of BBLS). The government makes a payment to cover interest and lender-levied fees under CBILS for the first 12 months. Following the launch of the Bounce Back Loans Scheme, CBILS will no longer be available for new loans and revolving credit facilities (overdrafts) of £50,001 or less, but remains available for Asset and Invoice Finance facilities below £50,001.

Coronavirus Large Business Interruption Loans Scheme (CLBILS)

CLBILS is a demand led scheme targeted at larger businesses with a turnover of more than £45m. It offers term loans, revolving credit facilities, invoice finance and asset finance. Businesses with turnover between £45m and £250m can apply for facilities of up to £25m, while businesses with turnover of over £250m can apply for facilities of up to £50m.

Future Fund

The Future Fund will support the UK’s innovative businesses currently affected by COVID-19. These businesses have been unable to access other government business support programmes, such as CBILS, because they are either pre-revenue or pre-profit and typically rely on equity investment. The scheme will deliver an initial commitment of £250m of new government funding through convertible loan notes which will be unlocked by private investment on a match funded basis. The government scheme, which will be developed in partnership with the British Business Bank with the intention of launching for applications in May, will initially be open until the end of September.

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ABOUT THE EXPERT

Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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