The future for many small businesses remains uncertain, despite lockdown restrictions lifting on leisure and hospitality businesses. Questions remain about how quickly demand will return across the economy, both as UK consumers adjust to a ‘new normal’ and as the coronavirus continues to spread elsewhere in the world.
Cheshire law firm, SAS Daniels, explain how the Bounce Back Loan Scheme can help small businesses recover from the effects of the Covid-19 pandemic.
The Coronavirus crisis has affected the majority of businesses across the UK, with small businesses in particular being hit the hardest. It is estimated that around two thirds of all small and medium sized businesses in the UK have been forced to temporarily cease trading during the crisis.
The Government has announced a range of measures to support small businesses through the crisis and help them get back on their feet; this includes the Bounce Back Loan Scheme (BBLS) which became available in May.
What is the Bounce Back Loan Scheme (BBLS)?
The Bounce Back Loan Scheme was introduced to help small businesses manage their cash flow without overburdening them. The scheme provides small businesses with access to loans of up to £50,000 and the Government will guarantee 100% of the finance which covers both the loan and interest. In addition to this, there are a number of other key elements to be aware of:
- Businesses can access from as little as £2,000 up to a maximum of £50,000. But the maximum value of the loan may not exceed 25% of the businesses’ turnover;
- There are no fees or interest payable in the first 12 months – this is covered by the Government;
- Interest is capped at 2.5%;
- There is no requirement to make re-payments for the first 12 months; and
- The loan term is for 6 years but can be repaid sooner without any penalties being applied.
Types of Businesses Eligible for the BBLS
In order to obtain funding, businesses should approach lenders taking part in the scheme, including all major UK banks. The Bounce Back Loan Scheme is intended to be easier to access than the Coronavirus Business Interruption Loan. In order to qualify for the BBLS, a business must:
- Be UK-based and operating prior to 1 March 2020;
- Have been impacted by the coronavirus pandemic;
- Not have been in difficulty at 31 December 2019;
- Not be using the Coronavirus Business Interruption Loan Scheme (unless the BBLS will be sufficient to re-finance the whole of an existing Coronavirus Business Interruption Loan);
- Not be bankrupt, in liquidation, or restructuring debts at the time of application;
- Derive more than 50% of its income from its trading activity; and
- Not be in a restricted sector (credit institutions, insurance companies, public-sector organisation and state-funded schools).
When applying for the BBLS, businesses will need to self-certify to the lender that they are eligible and they will be required to meet the above criteria. The lender will then make a decision on whether to offer finance.
An important difference to note between the Coronavirus Business Interruption Loan and BBLS is the fact that the lenders are not permitted to take personal guarantees by way of security for the lending; this will protect the personal assets of business owners.
However, while the government will guarantee 100% of the finance, the business will remain liable for all of the debt and repayments. It is important that businesses considering applying for the BBLS keep this in mind and seek advice from their financial advisers.