The government’s new Bounce Back loan scheme has opened for applications. Here is what you need to know.
The government’s new Bounce Back loan scheme has opened for applications from 4th May. The scheme gives small firms access to loans entirely backed by the UK government. Businesses can apply for “micro-loans” worth up to 25% of their turnover, up to £50,000.
Chancellor of the Exchequer, Rishi Sunak, said: “Small businesses will play a key role creating jobs and securing economic growth as we recover from the coronavirus pandemic. The Bounce Back loan scheme will make sure they get the finance they need - helping them bounce back and protect jobs.”
Terms of the loan
Further details about the terms of the loan have been announced. The government has also agreed with lenders that a flat rate of 2.5% interest will be charged on these loans. And any business that has already taken out a Coronavirus Business Interruption Loan of £50,000 or less can apply to have these switched over to the new scheme.
Eligible companies will be subject to standard customer fraud, anti-money laundering (AML) and Know Your Customer (KYC) checks prior to any loan being made. Some State Aid restrictions may apply to applications.
The length of the loan is six years but early repayment is allowed without early repayment fees. Lenders are not permitted to take personal guarantees or take recovery action over a borrower's personal assets - such as their main home or personal vehicle. There is a guarantee fee for businesses or lenders to access the scheme.
To be eligible a company must confirm it is UK-based in its business activity, it must have been established before1 March 2020 and it has been adversely impacted by the coronavirus.
In addition, it must prove it is currently not using a government-backed coronavirus loan scheme and that it is not in bankruptcy, liquidation or undergoing debt restructuring. It must confirm that more than 50% of the income of the business is derived from its trading activity.
The scheme will initially be open until 4 November 2020, with the government retaining the right to extend this.
Further detail on the loan is available on the British Business Bank website.
Reaction from the business community
Mike Cherry, National Chair of the Federation of Small Businesses, welcomed the scheme: “We know many small firms have struggled to secure small loans speedily. We are pleased that the Chancellor has listened, and swiftly developed this new scheme for small businesses to access finance quickly, interest-free for the first year and at an affordable fixed interest rate for the remainder.”
Stephen Jones, CEO, UK Finance added: “Accredited lenders approved to offer Bounce Back Loans have worked at pace with the Treasury to get this scheme up and running by Monday, and staff are now focused on processing applications and getting money to businesses as quickly as possible.”
CBI chief economist Rain Newton-Smith, said: “The Chancellor is standing shoulder-to-shoulder with small businesses to help them through the crisis. A 100% government guarantee on loans and a simple way of applying will be a lifeline to many small businesses and sole traders under pressure.
“Banks have been operating at full throttle and must stay in overdrive to get more money out of the door faster. Time is of the essence.”
Watch Ben Davey, Barclays Ventures CEO, discuss the new loan scheme and the government coronavirus business support measures as a whole in this video.