Well, it’s all change on the coronavirus loans this week and there’s a new kid on the block – a little brother for the much-maligned Coronavirus Business Interruption Loan Scheme.
Our latest video has Jon explaining the Bounce Back loan and also giving an update on CBILS. Watch the video or read all about it below.
In a bit of a boost for the little guy, the Chancellor announced on Monday the new Bounce Back Loan (the BBL) to be launched on 4 May. These are aimed at small businesses and the Government will guarantee 100% of the loan.
The idea of this is to get things moving by making the process quicker and easier. They’re promising a short online form, no need for cashflow forecasts, and payment within a week.
So, what are the details? In summary:
- Borrowing from £2,000 to £50,000
- Amount capped at 25% of turnover
- No interest or capital repaid in first 12 months
- Loan lengths up to 6 years
To be eligible, you need to tick three boxes:
- You’re based in the UK
- You’ve been negatively affected by Coronavirus
- You weren’t an undertaking in difficulty on 31 December 2019
Basically, the Government wants to make sure the loans are going to viable businesses with a chance of paying it back. They don’t want to prop up businesses that were failing anyway.
In addition, you can’t apply if you’ve already borrowed through the Coronavirus Business Interruption Loan Scheme (CBILS), but you will be given the opportunity to transfer this to a BBL if you’d like to do so before 4 November.
We don’t know what the interest rates will be on this yet, so it will be interesting (no pun intended) to see what they come up with. The Government have said that they will be working with the lenders to agree a “low rate of interest”.
On the face of it, this looks a really useful loan and a much-needed boost for businesses to get cash quickly and cheaply.
What about CBILS?
The big brother of the loans, the CBILS, has come in for a lot of criticism since it was launched in March. The banks have been asking for a lot of information and the approval process has been very, very slow. By last weekend, only 6,000 loans had been approved out of 300,000 applications.
So, in a bit of a response to this criticism and the BBL, the large banks announced today a change to the CBILS.
The seven largest lenders to SMEs released a joint statement. It’s a longish statement that you can read here, but the important wording is
“Lenders will only ask businesses for information and data they might reasonably be able to provide at speed and we will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability .”
The point is that they’re reducing the amount of info you have to provide to get the loan. Instead, they’re going to look at what they already have because, at the moment, they’re only offering these loans to their current customers. Therefore, they know what your bank account looks like and whether it’s well managed.
Overall, it will increase the speed of applications and getting the cash out to businesses.
What does it all mean?
For me, there are a few things to take out of this.
The first is that for both loans, they’re really pushing to get these out quickly to help businesses who need the money and need the money now, which has got to be a positive thing.
The second is that both loans now are generally low interest rates. We’re seeing rates on the CBILS of around 3% from the high street banks, which is a really good rate, and with capital repayment holidays. Some lenders are providing loans where you don’t pay any capital or interest for the first year. The Government will fund the interest for the first year on all loans and the BBL bounce back loan is a definitive “no repayments” for the first 12 months, but a number of the CBILS loans are offering that as well.
That’s all good but I would offer a note of caution. Even though they’re removing the need for a cashflow forecast, you should be preparing one for your own use. Sometimes it can be too easy to borrow without thinking it through, so please do look at your budgets and ability to repay when the payments do kick in next year.
Overall, I think it’s really positive stuff. If you’ve got any queries about borrowing, please do get in touch.
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See you soon.
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