What is the Coronavirus Business Interruption Loan Scheme? And are you eligible? How do you get it?

Find out in our latest video or read about it below.

With the coronavirus lockdown three weeks in, and with no sign of it ending, a lot of businesses are struggling for cash.

There is support from the Government for businesses, but some won’t land for a while yet.

We do have clients who have already received their £10,000 or £25,000 grants relating to premises, but there’s a cash gap between paying the wages of furloughed staff and the online portal to reclaim going live.

And, if you’re Self-Employed, your grant won’t arrive until June.

All while there’s a reduced…or no…income coming in.

And a potentially reduced income after the lockdown while the economy recovers.

So, that’s where the Coronavirus Business Interruption Loan Scheme comes in. Or, at least, is supposed to come in.

There has been a lot of criticism of the scheme. It was a great headline to “give” over £300 billion to businesses, but it is in fact a loan. And a loan that seems hard to get.

A few days ago, less than 1,000 out of nearly 200,000 applications had actually been processed.

And then there’s all the fuss about Personal Guarantees.

So, what is it all about?

My name is Jon Davies – I have an accountancy practice in Liverpool and, in this short video, I’m going to tell you.

Let’s go back to basics

The Coronavirus Business Interruption Loan Scheme was introduced by the Government and is a package worth around £330 billion. This is not free money; it’s guaranteeing the loans to make it easier for you to get the credit you urgently need.

The idea of this is that the Government will guarantee 80% of the value of loans up to £5 million but, to an extent, that’s between them and the lender.

So, how does it work?

You need to have a business bank account and the details are as follows:

  • The Government will cover 12 months’ worth of interest payments
  • The Government will back the loan – meaning it will be easier to get credit
  • However, the Government are not guaranteeing they will pay it off if you can’t (speak to the lender about this).
  • The lenders will not need a personal guarantee for loans up to £250,000 but will do so for amounts larger than that.

If you do want the loan, the first port of call would be your bank.

The good thing with this scheme is that the Government has committed to paying the interest on these loans for the first 12 months, as well as arrangement fees!

Please note that is interest, not capital. You’ll have to pay that back yourself! However, if you can afford to pay back the loan within 12 months, you’d have to pay no interest, making this a very affordable cash injection.

Who is lending the money?

Around 40 lenders are involved, from high street banks to alternative lenders. However, some have pulled out as the scheme developed.

What can the loan be used for?

The loan should be used to cover the cash gap that has arisen due to coronavirus.

This cash gap can include a salary for the Directors…but not dividends.

It can only be borrowed if your business was viable before coronavirus…..and is likely to be viable again after coronavirus.

What can’t the loan be used for?

The loan isn’t there to be used for:

  • Buying assets or machinery
  • Cash for a rainy day
  • Help to grow the business

If you want to do these, you should be using a normal loan.

It’s also likely you won’t get the loan if you qualify for the lender’s “standard” offerings. This is designed to help those who can’t access the finance normally.

What are the interest rates?

The high street banks are generally looking at between 3% and 8% at the moment, depending on the risk of your business. The lowest rate we’ve had approved for one of our clients was slightly cheaper at 2.83%.

Some of the alternative lenders are charging rates up to 20%.

The Government will pay the interest rate for the first 12 months, but you do need to look at the interest rate after that.

What security is required?

This was one of the controversies – the lenders were asking for personal guarantees, ie your personal assets would be on the line if you couldn’t pay it back.

However, you will no longer need to give a personal guarantee if you’re borrowing less than £250,000. If you’re borrowing more, there will be a personal guarantee, but it won’t include your personal home.

What information will I have to provide?

Each lender will need slightly different information, but the requirements we’ve seen include:

  • Confirmation you’ve already accessed all other available support, for example the Small Business Grant and the Job Retention Scheme
  • Your last annual accounts and management accounts to prove you have a viable business
  • A realistic cashflow forecast to show the cash gap and the fact that you’ll be able to repay the loan. The problem is that this is actually quite hard to do as the future is so uncertain. But a set of realistic and clear assumptions are needed to back up the application.

How long will it take to get the loan?

This is one of the problems – the banks are swamped with applications, which is why so few have been approved.

I spoke to one Business Bank Manager last week and he had 40 applications to process…and they take 3-4 hours each.

Therefore, it’s likely to take 3 or 4 weeks….at best.

And the businesses are desperate for cash!

We’ll wait and see whether there are any changes to get the cash moving faster and will keep you updated.

All in all, it has the potential to be a good source of cash to get you through the coronavirus crisis. But please do speak to your bank as soon as possible to get things moving. And do be aware of what you’ll need to prove to get the loan.

I hope you found that useful. If you’d like any support in applying for a loan, please do get in touch.

And, if you want more information about the support available to your business, please do watch our other videos.

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Any questions?

If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant