Bounce Back Loans, announced by the Chancellor Rishi Sunak on 27 April 2020, allow fast-tracked lending to smaller companies up to £50,000.
The Government will be paying interest on the loan for the first 12 months, and will also guarantee 100% of the borrowed amount.
Bounce Back Loans are available from accredited lenders.
How It Works
Like the CBILS, the Bounce Back Loan Scheme is delivered by accredited lenders and partners of the British Business Bank.
Lenders can provide loans from £2,000 up to 25% of a business’ turnover. The maximum loan amount is £50,000.
The maximum term for the loan is 6 years, with an interest rate set at 2.5% per annum. Early repayment is allowed with no fees.
The Government will make a Business Interruption Payment (BIP) to cover the first 12 months of interest payments, meaning that the borrower does not have to make any repayments for the first 12 months.
The scheme gives the lender a full (100%) government-backed guarantee against the full outstanding balance of the facility.
The borrower always remains fully liable for the debt.
Who Is Eligible
Lenders’ application forms require borrowers to self-declare that their business.
- Has been impacted by the COVID-19 pandemic;
- Is engaged in trading or commercial activity in the UK and was established by 1 March 2020;
- Is not using the Coronavirus Business Interruption Loan Scheme (CBILS) or similar COVID-related loan schemes, unless these are under £50,000 and can be converted into a BBLS facility;
- Is not in bankruptcy or liquidation or undergoing debt restructuring at the time it submits it applies;
- Earns more than 50% of its income from its trading activity;
- Does not operate within the restricted sectors, which include credit institutions, insurance companies, public-sector organisations and state-funded primary and secondary schools;
- Was not a business in difficulty at 31 December 2019.
A business is considered in difficulty if met any one of the following criteria on 31 December 2019:
- Companies that have entered into collective insolvency proceedings;
- Companies that have received rescue aid and have not yet reimbursed the loan or terminated the guarantee, or have received restructuring aid and are still subject to a restructuring plan;
- SMEs that are older than 3 years and have accumulated losses greater than half of their share capital in their last annual accounts;
- A company which is not an SME where, for each of the last two accounting years:
- Book debt to equity ratio has been greater than 7.5; and
- EBITDA interest coverage ratio has been below 1.0
- If the applicant self-declares that they were a business in difficulty as of 31 December 2019:
- They cannot use Bounce Back Loans for export-related activities;
- They must comply with State Aid regulations under de minimis State Aid rules (see below).
The Scheme is not available to companies already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). However, CBILS funding under £50,000 can be converted into a Bounce Back Loan as long as this is arranged with your lender by 4 November 2020.
How To Apply
Applications will be handled by individual lenders, therefore the first step is to find a lender among the BBLS accredited partners.
It is advisable to approach your business’ current provider, as lenders will likely fast-track existing clients.
You will need to fill in a short application form online, which self-certifies that your business is eligible for a loan under BBLS.
If your business is eligible, it will be subject to appropriate customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
The lender has full authority to decide whether to offer you finance.
Under the scheme, lenders are not permitted to:
- Take any form of personal guarantee;
- Take recovery action over your personal assets.
If one lender turns you down, you can still approach other lenders within the scheme.
State Aid Rules
For businesses in difficulty, Bounce Back Loans are considered as State Aid and are therefore subject to rules and limitations.
In its amended Temporary Framework, the European Commission allows direct aid to companies, provided that the total nominal value of such measures remains below the overall cap of EUR 800,000 per company.
Therefore, businesses are required to self-declare that, since 19 March 2019, they have not received more than £711,200 in State Aid under the State Aid Temporary Framework
The threshold is set at £106,680 in the case of fisheries and aquaculture businesses, and at £88,900 for agriculture businesses.
For businesses in difficulty, State Aid rules establish that a company stays within the threshold of de minimis State Aid, set at €200,000 in state-aid funding over the course of three consecutive years.
This equates to about £175,000 and it means, for business in difficulty, that funding under the Bounce Back Loans might interfere with other forms of de minimis aid such as SEIS investment.
If you are all three of the following:
- A business in difficulty as of 31 December 2019;
- Raised or plan on raising SEIS investment;
- Planning to apply for a Bounce Back Loan.
Ask your bank for clarification around additional de minimis State Aid rules.