The government’s latest initiative for cash-strapped small businesses struggling to cope with Covid-19 pandemic went live on Monday and is likely to prove hugely popular.
The Bounce Back loans scheme, announced by Chancellor Rishi Sunak, aims to help tens of thousands of small businesses struggling to secure finance from the Coronavirus Business Interruption Loan Scheme (CBILS), which has been criticised as overly bureaucratic and too exclusive.
Administered by the British Business Bank and the same panel of more than 50 lenders participating in CBILS, the terms of the Bounce Back scheme really are exceptionally generous.
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Businesses can borrow up to £50,000 at a fixed interest rate of 2.5%, no matter which lender provides the advance (you don’t have to apply to your own bank).
The government guarantees the lender that it will stand behind the loan in full if the business defaults on repayments, which means lenders do not have to waste time conducting credit checks.
Receive your money in days
A simple standardised application form should also mean loans go through very quickly. Cash could be in companies’ accounts within days of their online applications.
Bounce Back loans will be repayable over six years, though early repayments can be made without penalty. There are no repayments to make in the first year and lenders are not allowed to ask for personal guarantees from the company’s directors.
Importantly, while the scheme is aimed at the smallest businesses, the eligibility criteria set no maximum size constraints, whether by number of employees, turnover or balance sheet. Borrowers simply have to certify they are UK-based, that they’ve been adversely affected by the Covid-19 pandemic, that they’re not currently in bankruptcy or liquidation and that they’re not making use of any other Covid-19-related government loan scheme.
The upshot is that for any business in need of less than £50,000 to see them through the Covid-19 crisis, the Bounce Back scheme is head and shoulders above any of the government’s other initiatives, including CBILS.
And even if you think you may need more than that in the end, Bounce Back is worth considering in the short term; it’s possible that you’ll be able to convert the loans into a CBILS facility later on.
Equally, CBILS loans of less than £50,000 can now be converted into Bounce Back finance, which is likely to be a good option for most borrowers.
Flagship grants scheme flagging
The government’s flagship grants scheme for retail, leisure and hospitality businesses was supposed to provide speedy cash payments to thousands of struggling small companies in these sectors. But more than five weeks after the scheme was announced, many have not received the money they were promised because the local authorities administering the grants are dragging their heels.
In March, Chancellor Rishi Sunak said he was awarding £20bn to local authorities to provide non-repayable grants to crisis-hit retailers, leisure companies and hospitality providers. He promised a grant of £10,000 for businesses in premises with a rateable value of up to £15,000, rising to £25,000 for those in properties with a rateable value between £15,000 and £51,000.
But local authorities have yet to hand over more than a third of the cash. In major towns including Nottingham, Sheffield and Manchester, less than half the cash has been distributed. Any business that thinks it is eligible for this support but has yet to hear from its local authority should now take steps to find out when their grant will be paid. The Treasury initially promised that businesses would receive their cash within ten days, providing a valuable lifeline in sectors where large numbers of companies have been forced to close their doors. Speak to your local authority as soon as possible.
However, even if you don’t need finance to survive the crisis, don’t overlook this new scheme. The terms are so good that this could be a valuable opportunity to refinance other types of debt – expensive credit-card borrowing or bank loans, for example – or even to finance investment.
This is legitimate under the terms of Bounce Back. The government says you must have suffered adverse impacts from Covid-19, but not that you must be in so much trouble that you need emergency finance. A business suffering any negative effects at all could therefore take advantage of this cheap finance.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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