Business Bounce Back Loan Scheme - 'Small Businesses' Open for Business

Are you a small business working against all odds to push through the COVID-19 crisis? Today, 4 May 2020, the Government launched a business loan which is 100% guaranteed. If you have been negatively affected by COVID-19 you could be eligible to apply for this Government-guaranteed loan of between £2,000 and £50,000.

The scheme has been designed to ensure that small businesses, which need vital cash injections to keep operating, can get finance in a matter of days. The thinking behind this is that the small businesses in our economy are the backbone of our society and hence, this new rapid loan scheme is attempting to lift these businesses up during these uncertain times, in order to protect jobs, business structures and the future of our economy.

This loan scheme offers many benefits and incentives to businesses. Firstly, the loan is interest free for the first 12 month period, meaning that as a business, you are able to get back up and running before any repayments are due. Secondly, it has a six year loan term but allows for early repayment to be made, without incurring any extra charge. As well as this, the interest rate has been set at 2.5% per annum by the Government, meaning that there are no lender-levied fees. Therefore, from the start of the loan term, you will have certainty in knowing how much your business will need to repay by the end of the term. Finally, when the lender is considering your application, they are not entitled to take any form of personal guarantee. This means that any recourse for repayment of the loan will be against the business, thus limiting the personal liability of directors/managers.

To be eligible for this loan, an applicant must be a small business situated within the UK, the business must have been negatively affected by COVID-19 and it must not have been an “undertaking in difficulty” on 31 December 2019. An “undertaking in difficulty” means a business which met the criteria for insolvency under the Insolvency Act 1986.

In addition, a business will not be eligible if it is: a credit institution, an insurance company, a public-sector organisation or a state-funded primary or secondary school.

If your business qualifies and meets all of the relevant criteria, as set out by HMRC and the British Business Bank, then you will be able to borrow up to 25% of your turnover in the 2019 calendar year (up to a maximum of £50,000). If you set up your business after 1 January 2019, you will still be able to apply for the loan but instead it will be based on your estimated annual turnover from the date you started your business.

It has been suggested that you may be able to apply to refinance an existing loan that was taken out as a result of COVID-19. For example, if you have taken out a Coronavirus Business Interruption Loan, a Coronavirus Large Business Interruption Loan or a COVID Corporate Financing Facility loan, you may be able to switch to the Business Bounce Back Loan Scheme. You will need to talk directly with your lender to see if they will agree to do so. There is no guarantee that lenders will allow this.

If you are interested in applying for the Business Bounce Back Loan Scheme you should, in the first instance contact an accredited lender listed under the scheme guidance.

If you would like to discuss this or any other loan terms, please do contact the corporate team at Lanyon Bowdler who are happy to assist.