Coronavirus (COVID-19) – UK Government announces Bounce Back loan scheme for small businesses

Coronavirus (COVID-19) – UK Government announces Bounce Back loan scheme for small businesses

On 27 April 2020 Chancellor Rishi Sunak announced a new 100% Government-backed loan scheme for small businesses to borrow up to £50,000.

Under the Bounce Back scheme, which is due to go live on 4 May 2020, small businesses will be able to apply for loans of between £2,000 and £50,000.

The loans will be interest free for the first 12 months (with the Government meeting interest payments during this period) and will be provided by mainstream lenders in a similar way to the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The Government has confirmed that it will be working with lenders to agree low interest rates for the remaining term of the loan. No repayments will be due in the first 12 months of the term, which will be up to 6 years.

In response to criticism of delays accessing CBILS and CLBILS, the Government’s intention is that companies will be able to draw down cash under the Bounce Back scheme in a matter of days (and within 24 hours of applications being approved). The Bounce Back loans will be 100% underwritten by the Government (whereas under CBILS and CLBILS only 80% is Government-backed).

The application process is also expected to be much more straightforward than under CBILS and CLBILS, with a short online application form and no eligibility checks (other than some fraud checks).

Eligibility for a Bounce Back loan

The Chancellor indicated that Companies would be able to borrow up to 25% of turnover (capped at £50,000), although it is unclear at this stage how widely this test will be applied.

Companies will be eligible if they:

  • Are based in the UK.
  • Have been negatively affected by Coronavirus.
  • Were not an ‘undertaking in difficulty’ on 31 December 2019.

How does Bounce Back interact with CBILS?

If you have already claimed under CBILS, you will not be able to apply for a Bounce Back loan. However, the Government has confirmed that loans of up to £50,000 under CBILS can effectively be transferred into the Bounce Back scheme (giving the protection of the 100% Government backing) provided you arrange this with your lender prior to 4 November 2020.

It is unclear whether companies who have claimed more than £50,000 under CBILS will be able to transfer part of their loan into the Bounce Back scheme.

Whilst the Bounce Back scheme is specifically targeted at small and medium-sized businesses, there is no indication at this stage that larger businesses cannot choose to borrow under the Bounce Back scheme (rather than CBILS) where less than £50,000 is required.

Start-ups might also wish to consider utilising the Future Fund scheme. For further details please our article of 22 April 2020.

If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Harry Trick for Corporate and Commercial advice.

All information correct as at 28 April 2020.

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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.