Will the Bounce Back Loan Scheme help small businesses survive?

posted by 3 years ago in Covid-19

After growing pressure from small business owners and fears that up to one in five SME’s could be forced to permanently close due to Coronavirus, the Chancellor has unveiled a 100% Government Underwritten loan scheme designed for the UK’s smallest and most vulnerable businesses.

Research by The Small Business Academy, published on the 28th April revealed that 57% of businesses surveyed had ‘little or no’ revenue, and a further 24% reporting a ‘substantial’ loss of revenue. Combined, this is 4 in 5 businesses who have barely any cash coming into the company coffers, while they still need to meet obligations for rent, utilities, communications, insurance policies and many other fixed monthly outgoings.

This study also uncovered shocking news that 18% of business owners who responded to the survey are currently relying on state benefits to survive, and almost a quarter believed there was a ‘good chance’ they would have to close their business.

The Bounce Back Loan Scheme will be taking applications from 9am on Monday 4th May, although there is some speculation that this may need to be postponed as concerns mount over potentially fraudulent claims. When the scheme does launch it will allow business owners to apply for up to £50,000 to a maximum of 25% of their turnover.

How does this differ from the Coronavirus Business Interruption Loan Scheme (CBILS)?

The CBILS has been heavily criticised by businesses for it’s cumbersome application process,  a low success rate of approved loans, and the demand for Personal Guarantee’s from lenders, leaving borrowers with the potential of a huge debt to repay personally should the business ultimately fail. It is unsurprising that the take up has been low, with few willing to risk future bankruptcy to prop up their business.

The Bounce Back Loan Scheme looks to address some of those criticisms, unlike the CBILS the loans are 100% underwritten by the Government and there should be no requirement for a PG. Furthermore, the Government promises that no credit checks will be made against the borrower, and the application process will consist of a ‘simple’ two-page online form, with the monies being made available the following day.

There will be no repayments on borrowings for 12 months and the Government will cover the first year of interest.

Although the finer details are yet to be published, it is not believed that the borrowing will appear on director’s personal credit files, and therefore should not impact the borrowers ability to get a mortgage.

Can the Bounce Back Loan Scheme help me?

This loan is open to all types of businesses that were trading on or before March 2020. This includes sole traders, new companies and micro businesses.

As businesses are not required to demonstrate a financial need for the loan, some savvy business owners are using this once in a lifetime opportunity for cheap unsecured business lending to grow their business, with some planning to use it consolidate personal debts or invest in equipment.

Of course, this money does need to repaid so it should not be undertaken lightly, and you should consider whether you would be able to make repayments if your business did not recover as quickly as you hoped. However, the risks associated with this type are lending are much lower than traditional routes and it should come as a welcome relief to the smallest enterprises in the UK and for others, it could be the ‘growth’ money they been unable to secure until now.

Link to the full research:  https://www.thesmallbusinessacademy.co.uk/effect-of-covid-19-on-business/