COVID-19 EXPERT LEGAL INSIGHTS

Bounce Back Loan Scheme: Is it a bounce back from CBILS?

1 May 2020

This week the government announced a further loan scheme to help small and medium-sized businesses affected by coronavirus. In a reaction to the criticism received for the Coronavirus Business Interruption Loan Scheme (“CBILS”) (see our CBILS FAQs for more information) and its implementation, the Bounce Bank Loan Scheme is promised as a simplified scheme which allows small and medium-sized businesses to borrow up to 25% of their turnover, capped at £50,000.
 

Why has the government introduced yet another loan scheme?

The Bounce Back Loan Scheme is all about getting money quickly to the small businesses that need it. Although more applications are now being processed under CBILS and money is being loaned by banks, it was slow to start and the scheme has needed to be adapted since its initial implementation. However there is still criticism that not enough businesses are getting the money that they need, and that the government is failing to give sufficient comfort by guaranteeing only 80% of the amount to be lent under CBILS. Whatever the reasons, it does appear that CBILS is still faltering and the value of loans approved under CBILS has actually declined from more than £1.45bn in the seven days to 21 April, to only £1.33bn in the seven days to 28 April.

By launching a brand new scheme rather than further varying CBILS, Chancellor Rishi Sunak will hope that he has sidestepped such criticism. Under the new Bounce Back Loan Scheme, 100% of the loan will be guaranteed, and even more importantly there will be no forward-looking tests of business viability and no complex eligibility criteria. Despite this, the government is still resisting calls to provide 100% guarantee for all of the new loan schemes. In his statement the Chancellor said that by only providing the 100% guarantee for loans under the Bounce Back Loan Scheme, which is capped at £50,000, it balances the risk to the taxpayer against the need to get money to the businesses that need it most.

What are the key points to note in the Bounce Back Loan Scheme?

  • The government will guarantee 100% of the loan
  • There won’t be any fees or interest to pay for the first 12 months.
  • The government will work with lenders to agree a low standardised rate of interest for the remaining period of the loan.
  • Loan terms will be up to six years.
  • No repayments will be due during the first 12 months.
  • The scheme will be delivered through a network of accredited lenders.

How do I know if my business qualifies for the Bounce Back Loan Scheme?

You can apply for a loan if your business is based in the UK, has been negatively affected by coronavirus and was not an ‘undertaking in difficulty’ on 31 December 2019. 

The following businesses are not eligible to apply:

  • banks, insurers and reinsurers (but not insurance brokers)
  • public sector bodies
  • state-funded primary and secondary schools

You also cannot apply if you are already claiming under CBILS. However if you have already received a loan of up to £50,000 under CBILS and want to transfer it into the Bounce Bank Loan Scheme, you can arrange this with your lender until 4 November 2020.

Lessons learnt from CBILS?

Further details of the loan scheme are still to be announced ahead of its launch on Monday but, given the short timeframe in which to roll this out, some are already predicting similar teething problems to those faced by CBILS. For example, there have already been reports that the banks were kept in the dark as to what the lending limit would be, meaning further work had to be carried out this week by the banks to prepare for the launch of the scheme.

Launching the Bounce Back Loan Scheme in such a short time frame was always going to be a massive challenge for the government and the banks. Businesses have ceased trading in huge numbers across the country, and many will not return. For those that remain, they are desperately in need of financial support.

Lessons do seem to have been learnt from implementing CBILS. For the new scheme, the information that applicants will need to provide is much less detailed. The government has also promised that businesses will be able to apply online through a short and simple standardised application form. This sounds promising, as does the stated intention to provide a response, and to distribute the funds, within a matter of days of the date of application.

One of the other criticisms of CBILS is that banks are prioritising their existing clients. The standardisation of interest rates and the fact that there will be no fees for the Bounce Back Loan Scheme should mean that, unlike under CBILS, businesses won’t be at a disadvantage as a result of their lack of an established banking relationship.

The hope is also that, having already implemented CBILS and because of the minimal financial checks which will be required for a Bounce Back Loan, banks will be able to process applications under the new scheme much more quickly. However this may depend on the level of take up from businesses, particularly if some businesses see this as 'free-money' (at least for now) which is easy to get hold of.

There are still a lot of unknowns but with the scheme due to launch at 9am on 4 May, we won’t have to wait long to find out.

ABOUT THE AUTHOR

Emer Hughes is a Senior Associate in the corporate and commercial department. She advises small to medium-sized organisations across a range of sectors and industries, including startups and charities on a broad range of corporate and commercial transactions.

 

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