EXECUTIVE REPORT
Bouncing back to happiness
Adam Bernstein details the benefits of requirements of the government's 'Bounce Back Loan' scheme. Act quickly or miss out, he says...
Just as the government has been handing out money to businesses under threat as a result of coronavirus, so it has a number of loan- based programmes to keep struggling firms afloat. One, the Bounce Back Loan (BBL), stands out, but it’s closing to new applicants at the end of January 2021.
Defining a Bounce Back Loan With a BBL a business can borrow between £2,500 and £50,000 to a maximum 25% of its annual turnover over a six-year period. No interest is charged, and no repayments are made during the first year. For the remaining five years of the loan interest is fixed at 2.5% which is very low compared to a normal commercial loan. In September the government announced an option to extend the loan to 10 years and repayment holidays.
On top of the low cost is the ability to repay a loan early without any repayment charges being levied. Further, there’s no requirement or need to offer personal guarantees to secure the loan as it’s backed by the government.
The scheme is open to all - sole traders, (sole) directors of limited companies, and also those who are self-employed. But there is one snag - the business must have been going before March 2020, be still running, and have been affected by coronavirus. Other criteria are that 50% of income must be from trading, it’s not a business in difficulty as at 31 December 2019, it’s not in a restricted sector, and it’s not in receipt of another government lending programme. All of the details are on the
gov.uk website, under Apply for a coronavirus Bounce Back Loan.
Seeking and obtaining a BBL doesn’t remove the ability of the applicant to apply for the Self-Employment Income Support Scheme or Universal Credit. Also, unlike the furlough scheme, directors and employees can carry on working in the business. It’s also not taxable.
It’s worth noting that applicants, once approved, cannot top up or increase a BBL. Nor can they apply for a second BBL for the same business. Thought must therefore be given to the amount requested.
A natural question to ask is what a BBL can be used for? All the regime says is that “the business must confirm to the lender that the
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loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.” This is so wide and can therefore include investment, the cost of running a business such as (tax) bills, debts and employees. Directors could also take money as dividends.
Where to apply As to where to apply for a BBL, the website lists all of the currently accredited banks. All the usual suspects are there – HSBC, Lloyds, TSB, Barclays, Santander, NatWest, RBS and Bank of Scotland, plus the Co-operative Bank, Clydesdale Bank, Yorkshire Bank, Danske Bank and Ulster Bank. Also, there’s Starling, Paragon, Capitalontap, Arbuthnot, Coutts and Metro.
Noticeably absent are Nationwide and Monzo.
Clearly those who already bank with these accredited institutions are going to find life much simpler, as they’re a known quantity. Those who want to get funding from these banks will have to open full (or feeder – ‘basic’) accounts if they don’t already bank there.
Now here’s the catch: While limited companies need a separate and distinct business account, sole traders don’t. BBLs generally require separate business
accounts and this may lead to the need to have a fee-bearing account – only a handful including HSBC, Clydesdale Bank and Yorkshire Bank will lend to existing personal customers.
Applicants should set their expectations accordingly – with such a volume of applications it can take time to progress from a waiting list to being granted (or rejected) for a loan. Partly, this is down to volume, but it’s also down to due diligence checks to reduce fraud.
Lastly, a rejection by one bank does nothing to prevent an application to another, subject to the need to open a new account.
To end It’s entirely true that a BBL is a very attractive proposition, and one that is backed by the government. Even so, a BBL is still debt which must be repaid, with interest, if it’s kept for more than a year.
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