The Government has been under significant pressure in recent weeks to revise their emergency lending support, as the Coronavirus Business Interruption Loan Scheme, is failing to provide financial support quickly enough to struggling businesses.
Following such criticisms the Chancellor, Rishi Sunak, announced on 27 April 2020 that the Government will be introducing a new Bounce Back loan scheme from 4 May 2020. This Bounce Back scheme will offer the following financial support to eligible businesses:
- Loans for up to 25% of a business’ turnover up to a maximum of £50,000
- Loan terms up to 6 years
- No loan repayments, fees or interest due during the first 12 months of the loan term
- “a low standardised level of interest for the remaining period of the loan”
- The government will provide lenders with a 100% guarantee for the loan.
The Chancellor has assured businesses that there will be "no complex eligibility criteria", and any business which is based in the UK, which has been negatively impacted by coronavirus and was not an ‘undertaking in difficulty’ on 31 December 2019 will be eligible for the loan.
Furthermore, unlike the Coronavirus Business Interruption Loan Scheme which required businesses to prove their future viability after the coronavirus crisis, the Chancellor has indicated that there will be no such viability tests for the Bounce Back loan.
The Chancellor has assured businesses that the application process for a Bounce Back loan will be much simpler than the Coronavirus Business Interruption Loan Scheme, with just a two-page self-certification form online. In addition the Chancellor has promised businesses, and banks alike, that much of the credit checks which are required under the Coronavirus Business Interruption Loan Scheme will be removed.
Within his interview on 14 April 2020, the Chancellor had called on banks to pick up their pace in progressing business loan applications. Within his announcement for Bounce Bank loans the Chancellor appeared confident that the simpler application process would enable banks to process applications more efficiently and allow for businesses to receive the lending much quicker, “within days of applying”. Partnering this with the government guaranteeing 100% of the loans it is hoped that the banks’ will have an increased ability and willingness to lend, accordingly ‘unblocking’ emergency lending.
The Chancellor is hopeful that this new scheme will be a "simple, quick, easy solution” for small firms which are at risk of collapsing due to the delays of the Coronavirus Business Interruption Loan Scheme.
There have nonetheless been calls for the government to guarantee larger loans, acknowledging that the Government itself has referred to the Bounce Bank loans, as a “microloan scheme”. To date the Chancellor has been reluctant to provide 100% guarantees for larger loans, stating that the risks for small businesses must be weighed up against the risk to tax payers.
With the information which has been provided to date it seems that if Bounce Bank loans can be introduced as quickly and effortlessly as the Chancellor envisions then the scheme could be a real lifeline to many small businesses.
The full application process will become clearer next week and it will not take long for time to tell whether the banks are able to effectively respond to the demand for these new loans and whether emergency lending will indeed be unblocked.
From Monday, 4 May 2020 business can apply online for a Bounce Bank loan, or contact their bank:
For legal guidance on issues your business may be facing, please contact Chris Brightling, Head of Corporate & Commercial
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