Well, I didn’t see that coming. A ‘Bounce Back’ loan, to all businesses, of up to £50k (or 25% of turnover, whichever is the lower) with what looks like an almost automatic qualification process. Result.
I saw that the CBI had made an application to the Government to consider something like this, and do you know what? I’m delighted, and whether it was the CBI, or any other source, this looks like a welcome lifeline for many. Here’s how it works;
– Available from 09:00hrs Monday, 4th May 2020.
– Through a ‘network of accredited lenders’.
That’s a bit vague, but we know that it will be managed by the British Business Bank, in the same way that the CBILS loans are managed (although, to be honest, I have no idea what role BBB play in all of this as we have not seen hide nor hair of them in any CBILS application we’ve been involved in). It’s probably fair to assume that the network of accredited lenders is the same as that for CBILS. And if so, it looks like this. One would anticipate it’s your normal high street bank, amongst others.
– Precise details are yet to be published but indications, so far, are that it is a relatively straight forward ‘self-certification form’ applied for online, with funds available within 24 hours. Bingo!
That would be…..incredible? Whilst we have seen some banks quick out of the traps with early decisions and applications well under way (HSBC, Nat West, Yorkshire Bank) others such as Santander have been absolutely appalling. My own firm started an application in late March and we are yet to hear anything (other than, you are in a queue, don’t contact us. Really. Remind you of someone?). That’s shocking, hopefully an online system will by-pass this painful process.
Details will need to be announced in the next couple of days, we’ll keep you posted.
100% of the loan backed by the Government (so the lender is completely secure). The borrower, you or your company, will remain 100% liable (to the Government). If ‘you’ are the borrower, then all your assets are on the line. If the company is the borrower, then only the company assets are on the line (unless you have acted fraudulently as a director). This is a great point and will allow the Banks to ‘free-flow’ the money
– Interest rate
We are yet to see what interest rates are offered, but I’m guessing they will be in line with CBILS rates which vary massively between 3% and 7.5%.
Economically speaking, interest rates should reflect a number of things, including base rate and risk. So arguably with a base rate of 0.1% and a risk of 0% we would expect to see banks offer low rates. Frankly, there is no reason why they need be more than 1-2% above base, but I’m guessing they won’t. Nonetheless, it’s always worth going back to the bank to negotiate. Yesterday a client asked me if 5% was a good rate under CBILS? I thought it was pretty good bearing in mind some of the deals I had seen (7.5%). He didn’t. He queried it and got it reduced to 3.9%. Result. Advice (don’t listen to me and) don’t take the first offer.
And lastly, the Government will cover the first 12 months interest payments (same as CBILS)
– Repayment terms
the terms of the loan will be 6 years, and there will be no capital repayments required for the first 12 months (whereas the CBILS loan has a 6 month loan repayment holiday).
Things to note
– Last year’s trading. Your business must have been in a sound trading position as of 31 December 2019. The Government describe this as not an undertaking in difficulty. I’m guessing this could mean a negative balance sheet, continued trading losses, or a significant loss in last year. We don’t know at this stage, but this stops it being an automatic ‘yes’ to every application.
– The effect of Coronavirus on your business has been negative. This makes sense in that some businesses (25%) have paused trading, others are under pressure, whilst some are on fire. However, what doesn’t make sense is the next point which is;
– There will be no forward facing tests. I take this to mean no cash flow forecast, no business plan (both needed under CBILS). That’s a result in that it saves time, but how do you know how much to borrow?
– It’s a self-certified application. This probably covers off the 2 points above. But what happens if you apply for the max loan, and then your business is not affected? Well, I’m guessing if it’s not affected, and you know that in the first 12 months, then you won’t need the money and you can repay it back with a nil cash flow impact (no interest payments, no loan repayments)
– If you have already applied under CBILS. Early signs are that the terms are better under the Bounce Back loan, and if your application is under £50k (and you meet the other criteria) you can apply to your lender to switch to this scheme. That might not only get you the better terms, but off the hook (to the bank at least) for the 20%.
Should you apply?
Almost certainly. I can’t think of any major reason why you should not. Arguably, if your business is flying now, it may very well come to a grinding halt once lock-down is over and we all discover our old rat runs. As mentioned above, the combination of no tests and ease of application, potentially (we’ll see) good rates, no interest payments (for you at least) for 12 months, and no loan repayments for 12 months, then it’s about as close as you can get to the long awaited ‘grant’ that never appeared, but sadly this one has to be repaid.
And lastly, you might want to think about this when you make the application for the loan. If things, just now, are ‘controllable’ there is an argument for delaying the draw down of the loan until the last possible moment to delay the start of monthly repayments for as long as possible.
The above is what we know at this stage and as we get more info, we will let you know.
As always, let me have your questions. My contact details are
-Landline – 01326 660022
-Mobile/WhatsApp/Text – 07779799995 – Mike Hutchinson
-Zoom ID – 205 677 7765 – Mike Hutchinson