The Bounce Back Loan scheme will help small and medium-sized businesses to borrow between £2,000 and £50,000. The government will guarantee 100% of the loan and there won’t be any fees or interest to pay for the first 12 months.
Loan terms will be up to 6 years. No repayments will be due during the first 12 months. The government will work with lenders to agree a low rate of interest for the remaining period of the loan. The scheme will be delivered through a network of accredited lenders.
The Coronavirus Business Interruption Loan Scheme (CBILS) was meant to provide financial support to smaller businesses (SMEs) across the UK. CBILS has been widely criticised for its low approval rate with just 1.4% of firms being successful according to the Guardian.
At the time of writing, the scheme is not yet open for applications. From 4th May 2020 you will be able to get a loan through a network of accredited lenders.
It is expected that the application process will involve a two page self-certification form online. This will be far simpler than the CBILS process and won’t require a cash flow forecast.
Business including sole traders and limited companies can apply for a loan if they:
You can’t apply for a Bounce Back Loan if you have already applied for funding under the CBILS. If you have received a loan of up to £50,000 under CBILS, it is possible to transfer this into the Bounce Back Loan scheme. You will need to arrange this with your lender by 4th November 2020.
The maximum funding provided by the Bounce Back Loan Scheme is £50,000. We expect that the loan will be limited to a proportion of the business turnover. The maximum loan term is 6 years so there is likely to be some assessment of affordability based on the annual turnover (e.g. 25%).
The scheme is a loan so you are definitely expected to repay it! The loan is backed 100% by the government. The CBILS is only backed 80% by the government, which is the reason for the slow application process and the low approval rate.
Lenders will have to exhaust all avenues available to them to recover Bounce Back Loans before making a claim to the government for bad debt. Don’t expect any leniency from the lenders!
Although the scheme is backed by the government, it is individual lenders who will be providing the funds and setting the interest rates. The loan is interest free in the first 12 months as the government will be picking up the bill. After the first 12 months you will start to pay interest.
In general, HMRC will regard any company as being ‘in difficulty’ when it meets the criteria for insolvency under the Insolvency Act 1986, such as:
There is no detail yet on the definition of an undertaking in difficulty, but it expected that the HMRC definition above will form the basis for lending decisions. This means if your company is funded by a director’s loan to the extent that it has net liabilities it will be ineligible for a bounce back loan.
The EU definition of an undertaking in difficulty is used by the Scottish Government for grants. This is taken from Section 2(18) General Block Exemption Regulations. The text is not the easiest to read:
If your company owes a significant director’s loan balance that would prevent a loan application, you could consider converting the debt to equity in the form of share capital. Please seek legal advice before doing this!
To improve your prospects with your lender, it will help to have up to date accounts. If you have a financial year end between 31st December 2019 and 31st March 2020, now is an ideal time to prepare your annual accounts. This will help support that you weren’t an ‘undertaking in difficulty’ on 31st December 2019.
A set of accounts prepared by an accountant will also show your balance sheet position and make it easier for lenders to give you a lower rate.
Alterledger can help you improve your credit score by filing accounts with Companies House / HMRC. For more information, please use the contact form on the Alterledger website.
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