Latest UK government scheme adds ‘bounce’ for businesses

CHRISTINA NAWROCKI explains the most recent UK initiative to support small businesses left floundering by the pandemic

UK CHANCELLOR of the Exchequer Rishi Sunak recently unveiled another initiative to support small businesses: the Bounce Back Loan.

Rishi Sunak, UK Chancellor
Rishi Sunak. Photo: Ministry of Housing, Communities and Local Government, UK CC BY-ND

This follows the £330bn Coronavirus Business Interruption Loan Scheme (CBILS) to help the private sector. The Financial Times recently reported that more than half of small UK businesses are likely to run out of money within three months. Many will be relieved by a loan of up to £50,000, guaranteed by the government and interest-free for 12 months.

The aim of the scheme is to help businesses navigate through this extraordinary time and be in good stead to literally bounce back once the UK’s economy emerges from lockdown.

Claims can be made via a short and simple online application through accredited lenders, including Barclays, HSBC, Lloyds Bank, RBS and TSB. As with any loan, all applications have to be bank-approved — but once approved, the funds will be available within 24 hours.

Small businesses can claim up to 25 percent of their turnover through the loan scheme, as long as that doesn’t exceed £50,000. A business with an annual turnover of £100,000, for example, could claim £25,000.

No interest needs to be paid for the first year and the government will cover any fees. A normal bank loan can take months of applications and the laborious filling-out of forms, but the Bounce Back Loan doesn’t even require proof of turnover.

There are no forward-looking criteria or complex eligibility rules, which has been a sticking point for those trying to access financial relief through the CBILS. Long applications that have incurred substantial costs for some.

It is worth noting that although a business cannot claim the Bounce Back Loan (BBL) and the CBILS, if a business is in dire straits it can access the BBL quickly. This can then be transformed into a CBILS loan at a later date.

Through the BBL scheme, a business has up to six years to pay back the total. Three criteria must be met:

  • The business must be based in the UK
  • The business has to have been impacted negatively by coronavirus and/or the lockdown
  • The business must not be an “undertaking in difficulty” as of December 31, 2019, i.e. it doesn’t meet the criteria for insolvency.

Loan schemes will be welcomed by many small businesses, but some may be wary of additional debt. And quite rightly. Although the government is trying to help, it will take time for the economy to pre-COVID-19 levels. This could spell difficulty for businesses needing to service their debts.

There’s also a question mark on what the interest rate will be after the 12-month interest-free period. The government has said that it is working with lenders to secure a low rate, but this is yet to be specified.

For most sole traders and small business entities, the BBL scheme will be welcome. Since the government unveiled its “war chest”, the CBILS support has come under criticism. Recent figures suggest that a mere 2.6 percent of loans have been successful. This equates to just £8.7bn of the £330bn promised.

Many businesses have had applications rejected, which led to initial frustration. There have even been calls for the chancellor to increase the proportion of the loans that will be underwritten from 80 percent to 100, to encourage lenders to increase approval ratings.

This is where the Bounce Back Loan scheme differentiates itself. The 100 percent guarantee on the smaller loans for smaller businesses, as well as the fast-track approval system, means that those enterprises which need a cash injection can easily acquire it.

But before any loan is taken out, company owners should speak to their accountants to ensure that it is the best route to take, and won’t cast a shadow on the enterprise’s future.


* Christina Nawrocki is a managing partner at Wellers.