New bounce back loans to bail out small firms

The Government has announced another loan scheme to get emergency credit into the hands of very small businesses.

The Bounce Back Loans (BBL)  scheme will give small firms access to underwritten loans worth up to 25% of turnover, up to a maximum £50,000, within 24 hours of applying.

The loans will be available from Monday 4 May at 9am and will be 100% guaranteed by the Treasury .

Government guarantees

The BBL scheme has been developed in response to criticism of the Coronavirus Business Interruption Scheme (CBILS).

The CBILS scheme is criticised for being too slow and having too many conditions. It covers larger loans of up to £5 million, but so far only 20,000 have been issued.

BBL loans will be made available through a fast-track application process and on much easier terms.

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Chancellor Rishi Sunak says loans should reach businesses within days- providing immediate support to those that need it as easily as possible.

The loans will be interest-free for the first 12 months, with no repayments due in the first year.

The Government is working with lenders to ensure loans are advanced quickly. It also wants banks to charge a low, standardised level of interest after the first, interest-free, year.

The banks issuing CBILS  loans have been criticised for the long application process and tight conditions. Somewhere in the region of £3billion has been advanced so far.


At a glance

Eligibile

Business must be:

  • based in the UK
  • have been negatively affected by coronavirus
  • not have been an ‘undertaking in difficulty’ on 31 December 2019

Not eligible

  • banks, insurers and reinsurers (but not insurance brokers)
  • public-sector bodies
  • further-education establishments, if they are grant-funded
  • state-funded primary and secondary schools

CBILS


Philip King, Small Business Commissioner, commented:

“Some of our smallest businesses are in desperate need of cash and this scheme could be the saving grace that keeps them afloat.”

Last week, the software platform CountingUp 250 accountants wrote asking Government to do more for small businesses and self-employed.

CEO Tim Fouracre welcomed the new scheme.

“It’s a welcome move but the onus is now on lenders, particularly the high street banks with their reach and distribution, to actually start approving loans to those small businesses desperately in need of working capital. The high street banks have no excuse not to lend now.”

Kirsty McGregor of the Corporate Finance Network is concerned that banks are not best-placed to deliver.

“Speeding up the delivery of loans, for those who are willing to take on the debt, is certainly welcomed for the smallest businesses. However, I do worry about the ability of the banks to manage this new application process, especially when they are already under so much pressure to manage the CBILS applications.

“I would have preferred the Chancellor to provide funds to the English Local Enterprise Partnership network for a grant scheme, especially when both Welsh & Scottish governments have already announced such schemes for their businesses as devolved administrations & have been supported by HM Government to deliver this.”

Further resources

David Nunn is Content Manager at AAT.

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