KRW team news: coronavirus business bounce-back loan scheme launches

May 31, 2020|In KRW Insight|By Keith Witchell

The government have yesterday launched a new loan scheme for small businesses which is simpler and quicker to access than the existing Coronavirus Business Interruption Loan Scheme (CBILS).

The scheme has been launched in response to criticism of CBILS where lots of information has to be submitted and decisions and loan funds haven’t been delivered swiftly enough.

As a recap CBILS offers businesses loans of up to 25% of their annual turnover, with no interest or repayments for the first 12 months. Loans under CBILS are 80% guaranteed by government, and no personal guarantees are expected from Directors/shareholders, but due to the 20% ‘risk’ the banks are taking, they are asking for forecasts and other financial information before authorising loans.

So, how do the Bounce Back Loans differ? First of all the application process is very simple, using an online form with only seven or so questions. You will need to confirm your turnover for the last year, but otherwise the questions are relatively straightforward, with no need to submit cashflow forecasts or other financial information.

Secondly, the interest rate for these loans has been set at a flat 2.5% which is generally lower than the normal commercial rates being offered under CBILS.

However, as with CBILS, the government will cover the first 12 months of interest, no repayments need to be made for the first year, and no personal guarantees will be required, although of course the business will still be liable to repay the loan under both schemes.

So, what if you already have a CBILS application underway? If the loan you’ve asked for is no more than £50,000 you can apply to have it moved over to the new scheme.

In summary, the new Bounce Back Loans offer businesses fast access to loans which are initially interest-free, and with a low rate of interest for the remainder of the loan term. Care should be taken though to ensure you expect to be able to afford the eventual loan repayments.

How do you access the scheme? Further information on the scheme, including a list of all accredited lenders (which includes the big 5 high street banks) can be found on the Business British Bank website. We’d advise approaching your existing bank first before considering other lenders.

Key Facts

  • Bounce Back Loans are 100% guaranteed by the government with a simple application process
  • Loans of £2,000 to £50,000 can be taken, subject to a cap of 25% of your annual turnover
  • Interest is fixed at a flat rate of 2.5%, and funds are made available within days
  • They’re interest-free for the first 12 months, with no need to make repayments for the first year
  • Those who have submitted a CBILS loan application under £50k can switch it to the new scheme

For further advice on this matter, please contact me.

Keith Witchell