After significant lobbying, the Government has recognised the need to add an extra layer of security to support businesses who were struggling to access the CBILS loan scheme. On 27 April the Chancellor announced that he would establish the Bounce Back Loan Scheme to help small and medium-sized businesses borrow between £2,000 and £50,000.
What is the Bounce Back Loan Scheme?
The scheme provides “fast-tracked” lending to smaller companies of between £2,000 and £50,000. The Government guarantee the loans up 100% of the money borrowed.
A company can borrow 25% of turnover up to £50,000 (i.e. if sales are £150k pa, the maximum loan is £37,500). The loan term is 6 years – no overdrafts/invoice finance.
The interest rate is 2.5%. However, the Government will pay the first 12 months interest and there is a capital repayment holiday for the first 12 months.
The scheme is quick and easy to apply for with only 7 questions. Businesses can self certify to qualify for the scheme based on the eligibility criteria below.
It must be a going concern and have a solvent balance sheet, but the criteria to qualify for a Bounce Back Loan is much less onerous than CBILS with only three to meet:
- The company is based in the UK;
- The business has been negatively affected by the coronavirus;
- The company was not an ‘undertaking in difficulty’ on 31 December 2019, or is less than three years old with early trading losses not yet recovered*.
* The bank will need to be satisfied that businesses under three years old with early trading losses not yet recovered, still meet their other lending criteria.
What is an ‘Undertaking in Difficulty’?
Undertaking in Difficulty stems from EU state aid regulations, likely to be one used by HMRC for Enterprise Investments Scheme (EIS) rules. Any company is ‘in difficulty’ when it meets the criteria for insolvency under the Insolvency Act 1986, such as:
- the company is unable to pay its debts as they fall due;
- the balance sheet test – where the value of assets is less than its liabilities (including its contingent prospective liabilities)
If you have made losses greater than profits, then you are likely to be an undertaking in difficulty if you have funded the losses with loans.
For a full interpretation of Undertaking in Difficulty contact us using the form below.
What is the difference between CBILS and the Bounce Back Loan Scheme?
For further information, you can hear our recording, and read the accompanying article on preparing for a loan application. The BBB has also produced a handy fact sheet for SMEs to help you make sense of the scheme.
We recognise that many of our clients will want to talk to us about their Bounce Back Loan or ask for assistance in preparing the application. For further help with preparing management accounts, please contact Will Wilson. Finally, for assistance in preparing a loan application, please contact us on the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.