Coronavirus bounce back loans

The scheme comes at a time when the government is receiving criticism over its earlier Coronavirus Business Interruption Loan Scheme (CBILS), in particular the excessive complexity of the application process, the requirement to establish a lack or absence of security for loans of more than £250,000 and the fact that the government guarantee was only for 80% of the loan which meant some banks were wary of lending.

Under the new scheme:

• Companies can borrow from £2,000 to £50,000 up to a maximum of 25% of their turnover for up to six years
• The government will guarantee 100% of the loan and will cover the first twelve months of interest and fees for the loan with no principal payments due in the first 12 months
• The interest rate on the loan will be 2.5%
• The business must self declare to the lender
  • it is UK based and established by 1 March 2020 
  • it has been adversely affected by coronavirus
  • it was not in financial difficulty as at 31 December 2019
  • it is not currently using a government backed coronavirus loan scheme or, if it is, the bounce back loan will refinance that other loan fully
  • it is not currently in liquidation or undergoing debt restructuring
  • it derives more than 50% of its income from its trading
  • it is not in a restricted sector (credit institutions, insurance companies, public sector organisations and state funded schools);
• Businesses should approach any accredited lender via its website and it is intended that the application process should be simpler than CBILS. There is no requirement for security or personal guarantees;
• Companies who apply to a lender that they already have a business account should expect to receive the loan within days. For companies applying through new accounts, or which are approaching a new lender, it will take slightly longer;
• The borrower remains liable for all of the loan notwithstanding the government guarantee and defaulting borrowers are at risk of having their assets seized in repayment of the loan.

This is an important measure to address the crisis for smaller enterprises and some of the perceived issues with CBILS. It has however, already received criticism in some quarters for being limited to a maximum of £50,000 and for in the form of loans rather than grants, which may put off some companies unwilling to take on more debt repayments.