The government’s support for businesses through the coronavirus has been, by governmental standards, swift and comprehensive.
They have pledged or provided more than £15 billion for businesses in the last few weeks, primarily through the Coronavirus Job Retention Scheme; the Coronavirus Business Interruption Loan Scheme and the Covid Corporate Financing Facility. They have also announced VAT deferrals, scrapped business rates and agreed to cover statutory sick pay.
Announced last week and launched today, Rishi Sunak has unveiled another initiative, designed to work alongside the CBILS scheme and aimed at small businesses. The new ‘bounce-back’ loans will offer smaller companies 100% state-backed loans and come as a response to concerns raised by the business community over the slow pace of accessing the existing coronavirus support schemes.
What does the bounce-back loan scheme offer?
Businesses will be able to borrow between £2,000 and £50,000 and the aim is that, subject to successfully completing a self-certification process, they can access the funds within a matter of days. It’s to provide a lifeline to smaller businesses who need almost instant cash for their continued survival.
The loans will be interest free for the first 12 months, with the Government covering the costs of interest and any fees in the first year. No repayments will be due during the first 12 months. They will also provide lenders with a 100% guarantee for the loan thereby removing any risk for the banks, so as to encourage quick lending and remove the need for viability analysis. Firms will be able to access the loans through a network of accredited lenders.
How to apply
The loans are designed to be easy to apply for through a short, standardised online application. Businesses will need to fill in a two-page self-certification form on the dedicated page on the government’s website.
The government’s expressed aim is that if successful in their application, businesses should receive the cash within days, providing them with the immediate support they need to remain operational and to continue trading.
The pros
In short, the bounce-back loans scheme is simple to apply for and intended to be quick in getting the funds into the hands of business owners. Remarkably, there is little red tape to battle through and the checks and application process have been kept to a minimum.
It’s also clear that the government have listened to the needs of businesses. They have worked closely with relevant industry groups like the Federation of Small Businesses, the CBI and the Institute of Directors in putting the package together to fill a gap in the existing network of support measures announced so far.
The cons
On the other side of the argument, with an upper limit of £50,000, the loan is only really useful to the smaller end of the SME spectrum. It would suit micro-businesses, sole traders and entrepreneurs who may have struggled to meet the criteria for a CBILS loan.
There may well be businesses who fall between the two stools – unable to meet the criteria for a CBILS loan but too big to really benefit from a scheme where the absolute maximum loan award is £50,000.
From a practical perspective, despite the government’s aspiration for businesses to receive the funds within days, it’s worth treating this claim with some caution and to question the lenders’ ability to deliver on this given they are already overstretched in the current climate.
More generally speaking, there is some confusion and frustration in the business community surrounding which companies / sectors are eligible for which scheme, with many businesses which are not in identified priority sectors or which have been trading for only a short period slipping through the net and missing out on support at a critical time..
Final thoughts
If you’re a small business who needs access to relatively modest finance to tide you over, and quickly, then the bounce-back loan scheme could be the lifeline you need.
If you would like further advice and guidance for your business throughout this period, please get in touch, we’d be happy to help.
