A new 100% government-backed loan has been announced following the 80% government-backed Coronavirus Business Interruption Loan Scheme (CBILS) announced in March to help businesses weather the storm of COVID-19. The CBILLS has been heavily criticised in recent weeks as businesses struggle for approval for the remaining 20%. As a result, Chancellor Rishi Sunak has announced a new 100%-backed loan available to small businesses.
Originally published: 28/04/2020 | Updated: 04/05/2020
The ‘Bounce-back Loans’ scheme will be launched on Monday 4th May at 9:00am with a loan of between £2000 and £50,000 available, 100% backed by the government. The amount you’ll be eligible to borrow should be up to 25% of your annual turnover up to a maximum of £50,000.
Like the CBILS, this Bounce-Back Loan will be interest-free for the first 12 months, and should hopefully give lenders the confidence to approve loans for smaller businesses who were being rejected previously. The Chancellor has stated that these loans should be very easy to obtain, “with no eligibility requirements or forward looking criteria to satisfy, ‘just a standard form for people to fill in”.
If you’ve obtained a CBILS loan then you are not eligible for the Bounce-back Loan. However if you’ve applied for and been rejected for a CBILS then this Bounce-back loan is available to you – as it is available to those businesses who have not yet applied for any loans related to coronavirus relief.
The loans should be approved quickly and money in the bank within 24h of approval. This is very welcome news to small businesses currently closed or seeing a substantial reduction in turnover.
However, please be aware this is still a loan, and will need to be repaid and will begin to gain interest at a rate of 2.5% per annum after the initial 12 months interest-free period. So if you’re considering this loan please do forecast ahead and be sure that your business will be able to meet any projected repayments over the following 5 years.
The full list of key features for this loan type have been announced by the British Business Bank, you can read more from them directly on this link, but we have also summarised below:
- Loans range from £2,000 up to 25% of a business’ turnover. The maximum loan amount is £50,000.
- The scheme provides the lender with a full (100%), government-backed guarantee against the outstanding balance of the finance (both capital and interest). The borrower remains 100% liable for the debt.
- The Government will make a Business Interruption Payment (BIP) to cover the first 12 months of interest payments. The borrower does not have to make any repayments for the first 12 months.
- The interest rate for the facility is set at 2.5% per annum, meaning businesses will all benefit from the same, affordable rate of interest.
- The length of the loan is six years but early repayment is allowed, without early repayment fees.
- Lenders are not permitted to take personal guarantees or take recovery action over a borrower’s personal assets (such as their main home or personal vehicle).
- There is no fee to access the scheme for either businesses or lenders.
The official list of lenders providing the Bounce-back loan has been released as of today (Mon 4th May 2020), you can find that list on this link.