Lifesaver Bounce Back Loans

The coronavirus pandemic has, in a very short space of time, created the most abrupt and critical economic depression ever experienced, excepting world war.  Even businesses with contingency plans for disaster recovery could not have recognised such a global crisis would engulf businesses everywhere.  Small businesses are often less equipped to withstand adverse trading conditions but help is on hand; the British Government, in keeping with many other governments, has provided a range of financial and legislative support to keep businesses afloat.  Rishi Sunak, Chancellor of the Exchequer, said: ‘Our smallest businesses are the backbone of our economy and play a vital role in their communities. This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.”

When the Chancellor of the Exchequer announced one of the most crucial schemes for small businesses, the Bounce Back Loan scheme, the scheme received over 100,000 applications within the first few hours. 

The life-saving scheme extends loans from £2,000 to a maximum of £50,000 or 25% of turnover whichever is the lower, at a fixed interest rate of 2.5% which is deferred for the first year, providing a 12 month interest-free period.  The loan period is for six years but there is provision for early repayment without early repayment penalty fees.  Personal guarantees are not permitted and in the event of default, no recovery action can be taken over the principal private residence or principal private vehicle of the business owners.  There is no requirement for a business plan or financial report and if you have already applied and received a Coronavirus Business Interruption Loan it will be transferred to the Bounce Back Loan as you cannot be accessing more than one government loan scheme. The usual anti-money laundering and know your customer checks will be applied.  The only criteria for the Bounce Back Loan scheme is that your business has been adversely affected by the coronavirus pandemic, your business is UK based and was established by 1 March 2020 and you are not actively undergoing debt restructuring or bankruptcy or in liquidation.  Businesses must always remember that they remain liable for the Bounce Back Loan scheme

Eleven banks are involved in the Bounce Bank Loan scheme and differs from the parallel scheme the Coronavirus Business Interruption Loan scheme in that banks have been urged to process the applications quickly. Therefore the banks are processing their existing customers first as the anti-money laundering and know your customer checks will already have been done.

The banks expressed some reservations which the government is aiming to minimise.  There was a concern that bankers would be caught by the Consumer Credit Act in that they cannot knowingly lend money to a business that is failing.  However, the government is planning to introduce legislation to waive sections 140A-140C of the Consumer Credit Act to enable banks to sanction the Bounce Back Loans without risk.  The Bounce Bank Loan scheme has been well received by a number of organisations, Mike Cherry, national chairman of the Federation of Small Businesses, said: ‘This crucial new initiative should enable thousands of small businesses to access the working capital they need quickly, helping to protect the millions of jobs they provide in every part of the UK.  The Confederation of British Industry (CBI) chief economist, Rain Newton-Smith, commented “The chancellor is standing shoulder-to-shoulder with small businesses to help them through the crisis. A 100 per cent government guarantee on loans and a simple way of applying will be a lifeline to many small businesses and sole traders under pressure.” 

However, it has to be remembered that businesses large or small will now be facing a significant battle to “bounce back” and pick up the pieces when the pandemic eases.  All businesses will have to considerably vary their business model and may yet need the guidance of their professional advisors to navigate the global crisis. For more information about Bounce Back Loan applications please click here