The Bounce Back Loan Scheme explained
Rishi Sunak got tongues wagging again last week when he launched the government equivalent of a teaser campaign for their latest credit scheme: Bounce Back Loans.
With all but bare bones information on the government’s website initially, SMEs were drip fed further details ahead of the scheme’s official launch at 9am yesterday morning. This delayed clarity didn’t stop a reported 200 businesses applying in the first minute to Barclays – just one of the fifty accredited Bounce Back Loan lenders. Lloyds claims to have received 5,000 applications in the first three hours.
But let’s take a step back for a minute. What exactly is the Bounce Back Loan Scheme (BBLS)? How does the scheme compare to the Coronavirus Business Interruption Loan Scheme (CBILS) and where do businesses apply? We’ll cover all of this and more.
Echoing their explanation of the CBILS, the British Business Bank describes the BBLS as a scheme to provide “financial support to businesses across the UK that are losing revenue, and seeing their cash flow disrupted, as a result of the COVID-19 outbreak…” In fact, this is the exact wording they use to describe the CBILS. There is one key addition to the description though: “… and that can benefit from £50,000 or less in finance”.
In short, the BBLS enables businesses to take out a loan from £2,000 up to 25% of their turnover or £50,000 (whichever is less). Crucially, these loans come with a 100% government-backed guarantee – unlike the 80% guarantee promised under the CBILS. The maximum term for a BBLS loan is 6 years and businesses won’t pay any interest for the first 12 months. When they do start paying interest, they won’t have to pay more than 2.5%.
There are clearly a lot of similarities between the Bounce Back Loan Scheme and its predecessor, the Coronavirus Business Interruption Loan Scheme. So many similarities, in fact, that the best way to explain the BBLS is to explain the areas in which these two schemes differ.
Amount of funding
Although the government doesn’t specify any limits on the turnover of those applying, they have labelled the BBLS as being geared for “smaller businesses”. With this in mind, the maximum amount of funding available under the scheme is just £50,000. This is as opposed to the whopping £5 million available under the CBILS.
Forms of finance
As the name suggests, the BBLS offers SMEs the opportunity to access a straight up, no frills term loan. Despite the slightly misleading name, the CBILS actually gives businesses a choice of four forms of finance: term loans, invoice finance, overdrafts and asset finance.
Guarantees and security
Hold onto your hat because this one’s a biggie. Under the BBLS, lenders are not allowed to ask businesses for a personal guarantee or include personal assets in any recovery actions. Because the CBILS offers much larger loans, businesses can be asked to provide a personal guarantee if they want to borrow more than £250,000. However, this specifically excludes the business owner’s home and caps recoveries to 20% of the CBILS facility after the proceeds of business assets have been applied.
As we’ve mentioned already, the BBLS offers a 100% government-backed guarantee as opposed to the 80% offered under the CBILS. Under both of these schemes though, businesses are still taking on debt and they’re still responsible for paying that debt back. The government-backed guarantees are designed to encourage lenders to approve more applications, making it easier for more businesses to access the funding they need.
Speed and simplicity
Smaller funding limits and bigger government guarantees under the BBLS mean that the eligibility criteria is less stringent than that of the CBILS. The BBLS boasts a seven-question online application and a 24-hour turnaround in delivering funds – claims that on the surface seem to resolve criticism of the CBILS as delivering too slowly. But with applications flying in at the rate of 200 per minute, it remains to be seen whether accredited lenders will have the bite to match the government’s bark.
The government’s website boldly claims businesses wanting to apply for a BBLS loan need only be based in the UK and have been negatively affected by coronavirus. Nothing is that simple however and the British Business Bank (BBB) goes on to provide the following (non-exhaustive) eligibility criteria.
You can apply for a Bounce Back Loan if your business:
- has been impacted by the coronavirus pandemic
- wasn’t in difficulty as of 31 December 2019
- is UK-based and has been operating since at least 1 March 2020
- isn’t currently in bankruptcy or liquidation or undergoing debt restructuring
- makes more than 50% of its income from its trading activity
- isn’t in a restricted sector
- The BBB also specifies that a business isn’t eligible for BBLS funding if it already has funding under the CBILS, the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the Bank of England’s Covid Corporate Financing Facility Scheme (CCFF).
This is where things get a bit tricky because the BBB goes on to say that businesses with this kind of funding can apply for a BBLS loan if it will refinance the whole facility under these other schemes. There have also been reports that businesses will be allowed to switch their CBILS application to a BBLS application (if it’s under £50,000) or simply convert their CBILS loan to a BBLS loan.
As with the CBILS, businesses can apply for BBLS funding directly from their chosen lender’s website. The British Business Bank has accredited 50 lenders under the scheme, most of which are high street banks, although there has been talk of this being extended to a wider network of lenders and finance providers. Businesses are being encouraged to apply with their normal business bank first before casting their net any wider.
A quick search on the BBB’s website is enough to find the full list of accredited lenders but here’s how to apply for a Bounce Back Loan from the UK’s Big Five banks:
Click here for their dedicated Bounce Back Loan Scheme page which covers the basics of the scheme and Barclays-specific eligibility criteria. The page advises businesses that the quickest way to apply is through their online banking which can be accessed from the BBLS page.
HSBC’s dedicated BBLS page includes a great deal of information with additional links to legals and other fineprint. As an HSBC customer, you can link off the page and apply directly through their online portal. HSBC also provides application instructions for non-customers which include needing to open an HSBC account first.
You can click here to access the Lloyds Bounce Back Loan Scheme page which includes illustrative BBLS loan examples as well as a warning that the bank is experiencing high levels of demand. Once you’ve scrolled through key features and eligibility criteria, you can apply directly from the page.
Santander’s BBLS page includes the standard information and repayment examples as well as a note that applications received after 7pm won’t be processed before 9am the following day. Once ticking a box to agree to a few Ts and Cs, you can start your application straight from the page.
Royal Bank of Scotland (RBS)
Click here to head to the RBS Bounce Back Loan Scheme page which covers the basics of the scheme, steps to accessing BBLS funding and a few downloadable PDFs for more information. Once you’ve familiarised yourself with the RBS-specific eligibility criteria, you can start your application straight away.
When taking on any kind of debt funding (even if it’s 100% government-backed), it’s best to weigh up your options. Click here for more information about the Coronavirus Business Interruption Scheme if you need more than £50,000 to weather the COVID-19 storm or want a wider choice of finance solutions.
If you’re an innovative or high growth business (read: a startup), you might also consider the government’s Future Fund which offers convertible loans up to £5 million. If your main concern is waiting for HMRC rebates under the Coronavirus Job Retention Scheme, there are solutions out there designed to bridge the gap between applying and receiving the funds.
If you’re unsure, speak to your financial adviser, broker or accountant who are best placed to advise you on the right solution for your business. If there’s anything we can help you with, get in touch!