On the 27th of April, Rishi Sunak announced the Bounce Back loan scheme. This scheme is specifically targeted at small business and sole traders as the CBILS (Coronavirus Business Interruption Loan Scheme) is designed for larger businesses and the minimum lending criteria is set at £25,000.

The key points of the Bounce Back loan scheme are:

• Businesses can borrow between £2,000 and £50,000
• The amount will be driven on 25% of your 2019 revenue (this is assumed to be calendar year)
• At least 50% of your revenue must come from trading revenue (if you are a business that has rental income to for example, that makes us 60% of your revenue, you would be ineligible)
• Banks can impose extra measures on eligibility – Barclays for example has strict criteria on what constitutes financial difficulty as of 31 December 2019 which means some businesses will not be eligible (see more here)
• The loans will interest free and repayment free for the first 12 months. The interest rate must be capped at 2.5%
• No charges for early repayment of the loan within the first 12 months
• They are 100% backed by the government, so less exposure to Banks offering them
• The average term is 6 years – can you see yourself running your business for that long?
• You must be negatively affected by coronavirus in your business to apply
• The application form will be 1 – 2 pages that will focus on self certification – so you must be 100% honest!

Even though scheme is launching on the 4th of May 2020, most lenders will not have the processes in place for the applications until later in that week.

You should first approach your bank to see if they are offering this scheme. Barclays customers should be able to apply for the loans via the Barclays app to. The focus is going to be lending to profitable businesses, so even though we are expecting the approval rate to be far higher for the CBILS

These loans are welcome news for small businesses, however they represent debt that as you don’t start repaying it for 12 months, is easy to forget about. If you are going to apply for one and receive these funds, you must realise and budget for the repayment starting in 12 months time. The best way to do that is from when you start trading again, put away into a savings account, the monthly loan repayment. Do this every month so that you are building up savings to be able pay back this loan.

If you don’t start to pay the debt back or your business can’t because it has stopped trading, then especially for sole trader clients, this will impact you personally because even though they are 100% government backed, the bank will start to pursue you for those loan repayments, because they make revenue on the interest of those loans, so will not write them off until they absolutely have to. This can have real impact on your credit rating so please make sure, if you apply for these loans, you do so on the basis that you are incredibly confident you will be able to always meet the loan repayments.

I disagree with the advice that everyone should apply these loans, just in case you need the funds and then you can just pay it back within in the 12 months if you don’t. The business owner would need a huge amount of discipline to view those funds as spare funds not to touch and in practice, if you have cash reserves in your business it is easier to convince yourself to invest in something that perhaps you wouldn’t have bought had those cash reserves not been available. In some instances that will facilitate growth and in other instances, it will just meant that money is wasted and you then begin to resent having to pay back a loan when you know it was spent on something that didn’t help your business grow.

As always, you should speak to your accountant first before applying for any business lending and make sure you are borrowing an amount that you need as opposed to what you want which is usually higher.

Special thanks must be given to the team at Capitalise who we work with, to facilitate all our clients business lending needs. The team have been incredibly helpful and kept us up to date with how the lenders are dealing with the government lending schemes that have been announced.