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Last week, chancellor Rishi Sunak announced a new “bounce back” scheme to help small businesses hit by the coronavirus. It took some hard work to firm up all the details, but the Bounce Back Loan Scheme went live on Monday, 4 May 2020.

While many small businesses will be aided by the scheme, some small businesses have criticized the scheme. The reason for the criticism comes from the fact that banks may still apply their normal lending criteria, which can make it more difficult for smaller businesses to quality due to the lockdown.

 

What is the Bounce Back Loan Scheme?

The Bounce Back Loan Scheme (BBLS) is a method for lenders to offer loans for small businesses. The scheme makes it easier and faster for small businesses, affected by the coronavirus, to receive needed financing. There are some 11 lenders accredited to participate in the scheme.

Small and medium-sized businesses are allowed to borrow between £2,000 and up to 25% of their turnover, with loan amounts capped at £50,000. The government then guarantees 100% of the loan, and the recipients won’t have to pay fees or interest in the first 12 months. After 12 months, the interest is capped at 2.5% a year.

The length of the loan is 6 years, but it can be repaid early without having to pay a fee. No repayments will be due during the first 12 months.

 

Who is Eligible to Apply?

The loans are aimed at small businesses and sole traders who are based in the UK; however, there’s no limit on size of businesses that can apply. Each business will be required to demonstrate how they were affected by the lockdown and the coronavirus.

When it comes to qualifying for the loan, a company must have been in operation on 1 March of this year, and not have been in financial difficulty to that point. These loans are not intended to help businesses that were failing before the coronavirus hit.

Businesses cannot apply if they are:

  • Banks, insurers and reinsurers (except insurance brokers)
  • State-funded primary and secondary schools
  • Public-sector bodies

In addition, businesses cannot apply for the BBLS loans if they’ve already claimed financial assistance under the following schemes:

  • Coronavirus Business Interruption Loan Scheme (CBILS)
  • Coronavirus Large Business Interruption Loan Scheme (CLBILS)
  • Covid-19 Corporate Financing Facility

*Note: if a business has received a loan up to £50,000 under one of the schemes listed above, they can transfer the loan to the BBLS; they have until 4 November 2020 to get this done with their lender.

 

The Application Process

The application process is done online, where each business must answer seven questions. The questions with information about the company’s turnover, tax details, bank account, and also ask how the lockdown and the coronavirus have impacted the business.

Applicants are not required to provide security or personal guarantees to obtain a BBLS loan.

Then banks have been accredited to provide the BBLS loans, and the hope is they will be able to transfer the money faster than the CBIL loans.

 

When Will the Funds Be Available?

Any business interested in receiving a BBLS loan should apply through the bank where they have their business account. The Treasury has said funds should be available within a few days once the business has been approved for the loan.

There’s one more note – if your business has been turned down by one lender, you can apply to other lenders who are participating in the scheme.

 

BBLS Scheme Inundated with Applications

On Monday, big UK banks received about 100,000 loan applications in just one day. Barclays, alone, saw about 200 application in the first minute, while Lloyds receive 5,000 applications within 3 hours of the scheme going live.

That day, Barclays had said its first loans to go out under the BBLS would be awarded within 24 hours.

By Thursday, Lloyds Banking Group had received 17,000 so far, while HSBC had received about 12,830, and NatWest had received 10,000.

These are Loans – Not Grants

Stephen Jones, chief executive of UK Finance, was quick to say that businesses must understand that these are loans, not grants. In other words, companies need to be aware that they will be taking on additional debt and must take into account whether or not they will be able to repay the loan.

While the loans are backed by the government, they must be repaid. If companies do not repay the loans, the lenders are first required to go after those businesses for the money. This could lead to business assets being seized and going through the courts after the company owners.

Jones recommended that businesses consider carefully before applying for and accepting a new loan, especially if they’re already indebted.

 

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