Bounce Back Loan Scheme: what you need to know
6 November 2020: smaller businesses impacted by coronavirus can apply online for funding support of up to £50,000 via the Bounce Back Loan Scheme (BBLS), if certain eligibility criteria are met. Flexible repayments (Pay as you Grow) were announced in September. New applications may be made until 31 January 2021.
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What is it and how can I get hold of the money?
The Bounce Back Loan Scheme (BBLS) provides lenders with a government-backed guarantee of 100% to offer loans of up to £50,000 to businesses across the UK that are losing revenue as a result of the COVID-19 outbreak.
UPDATE November: BBLS is open for new applications until 31 January 2021 (previous deadline 30 November 2020).
Key features of the scheme
- From £2,000 to £50,000 facilities, up to 25% of turnover, for eligible businesses, regardless of annual turnover. Update November: Businesses that have borrowed less than their maximum limit may top up their existing loan, from week beginning 9 November.
- Facilities: term loans
- Repayment terms: six years, and early repayment permitted. Update September: Businesses that borrowed under BBLS may have the option to:
- repay the loan over a period of up to 10 years
- move to interest-only repayments for a period of up to six months; or
- under certain circumstances, pause repayments for a period of up to six months.
- Interest rate: 2.5% per annum. No interest is payable in the first 12 months.
- Personal guarantees: No personal guarantees. No recovery action can be taken over the borrower’s main home or primary personal vehicle but, for sole traders or partnerships, other personal assets may be at risk of recovery action.
- 100% guarantee: The scheme provides the lender with a government-backed guarantee (100%) against the outstanding facility balance (principal and interest).
- The borrower always remains 100% liable for repayment of the debt.
- The borrower must self-declare they meet the eligibility criteria and make certain confirmations.
Eligibility and additional features
Some of the usual consumer protections do not apply, including those under the Consumer Credit Act 1974.
Businesses would be wise to seek advice from their ICAEW Chartered Accountant or business adviser when applying for funds. Find an ICAEW Chartered Accountant here.
A business must confirm:
- It is a UK limited company or partnership, or tax resident in the UK, that was carrying on business on 1 March 2020
- More than 50% of its income is derived from its trading activity
- The loan will not be used for personal purposes but as an economic benefit for the business
- Whether or not on 31 December 2019 it was a ‘business in difficulty’ (see definition in FAQs for Small Businesses: Bounce Back Loan Scheme) and does not breach state aid restrictions. If it was a ‘business in difficulty’ then, in addition, the facility will not be used for export-related activities
- It is not in bankruptcy, debt restructuring proceedings or liquidation
- Its understanding of losses that may be incurred, impact on credit rating, reduced consumer protection and that the lender will not assess affordability
A business will be subject to standard checks such as customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks. A lender may require other information eg self assessment tax returns.
Ineligible businesses and sectors: banks, building societies, insurance companies; the public sector including state-funded primary and secondary schools; or an individual other than a sole trader or partner acting on behalf of a partnership.
Businesses that have utilised the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the Bank of England’s Coronavirus Corporate Financing Facility (CCFF) cannot also use the BBLS unless that loan will be refinanced in full by the BBLS.
More ICAEW resources
- Access The Business Finance Guide, by ICAEW and the British Business Bank, for explanations of different finance products, and information on working capital management
- Review your cashflow forecasting processes with Nine principles for finance professionals