The Bounce Back Loan Scheme (BBLS) is providing access to loans of between £2,000 and £50,000 to support SMEs that are losing revenue and seeing their cashflow disrupted due to the coronavirus. The loan has a flat interest rate, no upfront fees and in the first-year interest costs are covered by the government.
Launched on 4 May 2020, the scheme has already had over 100,000 applicants and has seen approvals from day one.
The key features of the scheme are:
- Loans of between £2,000 and £50,000. However, the maximum loan a business can get is limited to 25% of annual turnover.
- While the borrower remains 100% liable for the debt, the lender has a guarantee from the Government for 100% of the outstanding facility.
- The interest rate on the loan is set at a flat annual rate and the government is making business interruption payments to cover the first 12 months of the interest payments.
- The loan term is set at six years, however early repayment can be allowed and there are no early repayment fees.
- The facility is unsecured and there is no recourse to a borrower’s principal private residence.
The British Bank, which is administering the scheme, has set out the eligibility criteria. A business must self-declare that it:
- Has been impacted by the epidemic
- Was trading prior to 1 March 2020
- Trades in the UK and more than 50% of its income is derived from its trading activity (there are some differences for certain sectors)
- Is not using the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the Bank of England’s COVID-19 Corporate Financing Facility Scheme (CCFF). The one exclusion is if a loan under one of these schemes is less than £50,000 and the applicant is converting that facility to a Bounce Back loan.
- is not in bankruptcy or liquidation or undergoing debt restructuring on application
- is not within one of the following sectors:
- Credit institutions (falling within the remit of the Bank Recovery and Resolution Directive)
- Insurance companies
- Public-sector organisations
- State-funded primary and secondary schools
- Was not a ‘business in difficulty’, which has been summarised below, as at 31 December 2019
A ‘business in difficulty’ has been defined as one which, as at 31 December 2019, met one of the following criteria:
- Individuals or companies that have entered into collective insolvency proceedings;
- Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs less than three years old);
- Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than three years old);
- Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan;
- A company which is not an SME where, for each of the last two accounting years: i) the book debt to equity ratio has been greater than 7.5; and ii) the EBITDA interest coverage ratio has been below 1.0
As at the time of writing, there are 12 accredited lenders operating under the scheme. These are:
- Bank of Scotland
- Clydesdale Bank
- Danske Bank
- Lloyds Bank
- Ulster Bank
- Yorkshire Bank
New lenders are being added to the accredited list regularly so check the British Business Bank website for the latest list. At the moment only a handful of lenders are taking applications from new customers. Even in those cases businesses will need to open new accounts with them, so build in time for the client on-boarding process. All applicants are encouraged to use the online application forms on each lender’s website. Applications from eligible borrowers will be subject to customer fraud, Anti-Money Laundering and Know Your Customer checks.
The scheme has been described by Chancellor Rishi Sunak as ‘a simple, quick, easy solution for those in need of smaller loans’ and so is a good port of call for those businesses that have struggled to access the CBILS scheme and require a smaller amount of money to tide them over.
Government legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate advice from their financial adviser before making financial decisions. Information sourced from british-business-bank.co.uk and is correct as at 7 May 2020.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.