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28/04/2020

Bounce Back Loan Scheme announced for Small Businesses

The challenge facing so many businesses just now as they fight for survival in a very uncertain world is cash flow.

For some weeks the Government has had in place a number of significant measures designed to ease the cash flow pressure on businesses with a view to keeping as much of our wealth and job creating infrastructure intact until we get through this outbreak. Some of these measures are already having the desired effect especially deferring VAT payments, business grants and now much needed refunds of salary costs through the Job Retention scheme are beginning to flow with 500,000 claims made to date.

Coronavirus Business Interruption Loan Scheme

The one scheme which has attracted a lot of criticism has been the Coronavirus Business Interruption Loan Scheme (CBILS). The criticism has centred round the time it takes to access these 80% Government backed loans from banks and the viability tests that must be appliedbefore approving a loan.

We know that the banks and approved lenders are working hard to try and process as many CBILS loans as the rules permit – 20,000 loans have been made to date – and so yesterday the Government announced that it would introduce further measures to increase the ease by which businesses can access the CBILS. For example, the viability test will be changed so that all banks will need to assess is whether a business was viable pre-Covid-19. This is encouraging.

Bounce Back Loan Scheme

What was also encouraging yesterday was that the Chancellor, in recognising the importance of small businesses to our economy, announced a new fast track small and medium sized business loan scheme which is confidently called the Bounce Back Loan Scheme (BBLS). Although this gives us yet another acronym to remember, the positive news about the BBLS is that it should fast track access to additional funds within days in an attempt to replicate the speed and success of the Swiss loan scheme.

Almost every SME business can apply for the BBLS, with some limited exceptions, provided the business:

  • Is based in the UK
  • Has been negatively affected by coronavirus
  • Was not an ‘undertaking in difficulty’ on 31 December 2019
  • Has not already accessed a loan of up to £50,000 through CBILS although it will be able to transfer the CBILS loan into the BBLS before 4 November 2020

At this stage there has been no clarification on what defines an “undertaking in difficulty” but it is likely to mirror the new pre-Covid-19 viability test which applies to the CBILS. Therefore, if a business was making losses and struggling to meet its obligations as they were due before the outbreak, then they may well be excluded from being able to access the BBLS. Further clarification on this should follow shortly.

The key elements of the BBLS are:

  • The loan is capped at 25% of turnover and businesses will be able to borrow from £2,000 up to a maximum of £50,000
  • The lender will be provided by a 100% guarantee by the Government and there will be no fees, interest or repayments in the first 12 months
  • Businesses can apply online through a short and simple application form
  • Businesses can access these loans through a network of accredited lenders
  • The loan term will be for a period of up to six years and there will be a low standardised level of interest cost for the remaining period of the loan

Applications will open on Monday 4 May 2020.

Thanks to Johnston Carmichael for this advice. 

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