What Bounce Back Loans Mean for Small Businesses

Christina Nawrocki, Managing Partner at Wellers, explains the latest announcements from the Government aimed at helping small businesses.

 

At the beginning of lockdown, the Government unveiled a £330bn war chest to help British businesses weather the storm of coronavirus. The Coronavirus Business Interruption Loan Scheme (CBILS) was welcomed by many in the private sector, however it is mainly aimed at larger businesses.

Since then, the Chancellor, Rishi Sunak, has unveiled an initiative to support small enterprise – the Bounce Back Loan (BBL) scheme.

Aptly named, the scheme has been designed to help businesses ‘bounce back’ following the pandemic and help the economy to recover faster by preventing businesses from collapse. Qualifying companies could receive a loan of up to £50,000 which is guaranteed by the Government and interest-free for 12 months.

 

What is it?

During this time, many businesses have experienced a downturn in sales. In fact, the FT reported that over half of small businesses in the UK could run out of money within three months.

The scheme has been devised to help businesses survive until the economy begins to recover, when it is hoped that British enterprise will eventually get back to normal operating levels. Businesses can apply via a short and simple online application through accredited lenders, such as high street banks including Lloyds Bank, HSBC and Barclays. Like with any loan application, they do need to be approved so are not an automatic guarantee, but unlike a normal loan, once approved, the funds will be available within 24 hours.

 

Who can benefit?

Businesses are able to claim up to 25 percent of their turnover, up to £50,000. So, if a business has an annual turnover of £200,000, it can claim the full £50,000. However, if it has a turnover of £100,000, it could only claim up to £25,000.

Additionally, there will be no interest applied for the first year (2.5% thereafter) and the Government is covering any fees raised. Businesses don’t even need to prove their turnover in order to benefit and there are no laborious forms to fill out and accounts and cashflows to prepare,, unlike when claiming through the CBILS, which can involve incurring costs.

What’s more, when the scheme was originally announced, businesses couldn’t benefit from both a BBL as well as the CBILS. However, the Government has updated this, and those that need urgent access to funds can access them through the BBL which can later be transferred to a CBILS loan, which allows for a higher loan amount.

Through a BBL, a business has up to six years to repay the loan amount – although no payments are required for the first year. To qualify, there are a number of fundamental requirements which are listed on the Britsh Business Bank website but fundamentally :

  • The business must be UK based
  • Business must have been negatively impacted by coronavirus/and or the lockdown

The question of debt

During a time when many businesses are experiencing difficulty, it wouldn’t be wrong to question whether taking out a loan is only going to prove more problematic down the line. Of course, both the CBILS and BBL schemes have been hailed as significant measures by the Government to save British business, but it must also be recognised that it will take time for the economy to recover from the effects of COVID-19.

 

In conclusion

For those operating on a sole trader, micro or small business basis, the announcement of the Bounce Back Loan scheme will be a welcome one. Since the Government’s initial announcement, the CBILS has been met with some criticism – mainly because only a mere 2.6 percent of the loans applied for have been approved.

With its limited criteria and smaller loan amount, the BBL scheme is able to differentiate itself for the better. The 100 percent guarantee on the smaller loans and fast-track approval system means that businesses requiring an urgent cash injection can access it. However, it is important that before any business takes out a loan, no matter how small, they should consult their accountant first to ensure that it won’t impact on their enterprise’s future.