Covid-19 Financial Liquidity for SMEs: Bounce Back Loan Scheme

HM Treasury has announced further support for SMEs in the form of the 'Bounce Back Loan Scheme’ (BBLS) which became available on 4 May.  This adds to the existing funding schemes for business:

• the Coronavirus Business Interruption Loan Scheme (CBILS), aimed at SMEs with a group turnover of less than £45m;
• the Coronavirus Large Business Interruption Loan Scheme (CLBILS), aimed at businesses with a group turnover of more than £45m,

(see our updates from 21 April and 20 March)

• the Covid Corporate Financing Facility (CCFF), aimed at large corporates, who are able to issue commercial directly to the Bank of England.

Purpose

BBLS is intended to provide fast-track finance for micro-businesses that may not qualify for CBILS, to access loans of between £2,000 and £50,000 (capped at 25% of turnover) through a simple online application form.  The intention is that the funding will be made available to the business within a couple of days of it applying. 

In common with CBILS loans:

• in the first 12 months, the loans will be interest free and no capital repayments will be due;
• loan terms of up to 6 years will be available;
• arrangement fees will be paid by the Government, meaning there should be no set up fees for businesses;
• the scheme will be operated through the British Business Bank and shall be delivered by over 40 accredited lenders;
• the business is responsible for repaying the loan.

Unlike CBILS:

• the interest rate is fixed at 2.5% per annum for the term;
• the loans are “self-certifying” - the business only needs to demonstrate that it was not a ‘business in difficulty’ (essentially not insolvent) on 31 December 2019, rather than having the burden of demonstrating a viable business model in the absence of Covid-19; and
• any security taken by the lender cannot include any form of personal guarantee;
• lenders making loans under the scheme will receive 100% repayment guarantee from the Government (rather than 80%), should the business fail to repay the loans.

If your business has received a CBILS loan, you cannot apply for a Bounce Back Loan, but if your CBILS loan is of £50,000 or less, you have until 4 November to transfer it into the BBLS by contacting your lender.

Comment

In announcing this further fund, the Government is responding to calls from industry that there should be 100% Government-backed support for businesses, and reflecting the approach taken by some other European governments, examples of which include:

• the 90% government guarantee for 25% of the 2019 revenues that France has provided to businesses with less than 5,000 employees and a turnover of less than EUR 1.5 billion in their previous financial year; and
• the 100% German Federal government guarantee for up to three months revenue not exceeding EUR 800,000 (for businesses with a workforce of more than 50) or EUR 500,000 (for businesses with a workforce of 50 or less).

A potential unintended consequence of BBLS is that lenders may refuse CBILS loans to businesses wishing to borrow a little bit more than £50,000, suggesting instead that such businesses should borrow £50,000 under this scheme, which would provide the lender with 100% protected against financial failure of the business, rather than 80% protection, as they would be under CBILS.

This scheme tries to strike a balance between supporting the smallest businesses and recognising that entrepreneurs should accept some business risk for business failure.  Easily accessible finance sounds good on paper but will the lenders be willing or able to deliver? Also how many micro-business owners will feel confident about taking on the burden of additional loans in an uncertain economic climate.  Only time will tell. 

For further advice on your finance and banking support, including advice on giving security and corporate restructuring, please get in touch with:

• Richard Hiscoke (Legal Director – Corporate)
• Christian Hunt (Partner - Corporate)
• Louise Leaver (Partner – Banking and Finance
• Monica Macheng (Partner – Corporate)
• David Moore (Partner – Banking and Finance)

For further support and advice relating to the impact of Covid-19, please view our Covid-19 Advisory Service page.