COVID-19 | Bounce Back Loan Scheme and other government financial support
COVID-19 | Bounce Back Loan Scheme and other government financial support
Last week, the government announced a further measure to help small businesses navigate the current climate, offering up to £50,000 of fast-access finance for those that have been affected by COVID-19.
This webinar will run through the details of the new 100% government-backed ‘Bounce Back Loan Scheme’ and how it could provide businesses with a much-needed lifeline to survive the crisis. We’ll also look at the other government support available including the Coronavirus Business Interruption Scheme (CBILS) and the loan scheme for larger businesses.
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Hello there. I'm Lisa Bottrill and I'm a Partner in the corporate team here at Shakespeare Martineau. Welcome to today's webinar on the government loan schemes that are currently available to businesses to help them through the period of disruption caused by the coronavirus. You'll see a Q&A icon on your screen. So please do ask questions and we'll share a summary of all questions and answers with everyone after the webinar.
There are now essentially three different loan schemes available to help businesses.
On the eligibility for each scheme depends on the size of each business.
each scheme also commits different sizes and types of loan The most recently announced scheme is the bounce back scheme, which now runs alongside the coronavirus business Interruption loan scheme, which I'll refer to as see bills because that's a bit of a mouthful and the large loan scheme.
I will run through some of the details first for the new bounce back scheme and then take a look at how things have progressed with see bills as it's been up and running for over a month now and then take a brief look at large loan scheme.
Anything firstly to the bounce back scheme borrowers can borrow on a Term Loan basis only between two thousand and fifty thousand pounds, but there is a further limit.
Which is the lesser of 50,000 and 25% of the businesses turnover.
The scheme doesn't cover any sorts of loans other than borrowing a set amount over a fixed period of time any other sort of facility would need to be borrowed undersea Bills or the large loan scheme and not the bounce-back scheme.
The real benefit of this loan is that there's no cost attached to the loan for 12 months. So that's no fees and no interest payable by the borrower for those first 12 months. Essentially. What happens is the government pays the interest and any fees to the bank on behalf of the borrower. This is called a business Interruption payment.
Now this payment counts the state aid received from the government by the business in question, but for small businesses, this is unlikely to be much of a problem because I wouldn't I wouldn't imagine that many businesses have received enough other money from a government put them in breach of state aid.
Rules what you should also note if it however is that the government won't pay the capital and that will be repayable and equal installments once the 12 month interest free period has Some over the following five years.
The money can be borrowed for up to six years and is a hundred percent guaranteed by the government. And when we say the government what we really mean is the taxpayer the interest rate is quite low at just two and a half percent per annum and that's for the whole life of the loan.
The loan can be repaid early if the borrower wants and for that there will be no repayment penalties at all. However, the borrower does remain fully liable for the debt at all times.
Ultimately, however, if the borrower will become insolvent the government would pay the balance of the loan back to the bank. So that's basically how the scheme works.
The bounce-back loan is currently only available from 11 lenders, which is pretty much just the large High Street Banks, although from what I understand. There are other lenders who in the process of applying and once they're accredited they'll also be able to provide these loans. There are over 40 lenders approved for see bills. However, so access to the bounce back scheme is through a much more limited set of lenses and see builders.
In terms of availability of the loan the government have made it so that you can apply just by going online and filling in a form.
There are no Financial viability criteria that need to be met which is very different from C bills where the lenders usual lending criteria need to be met before the loan will be made if a bounce-back loan application is turned down by one lender for any reason then a borrower can go and apply to another however, it's not quite that simple because the anecdotal evidence that I receive from clients about their applications is that a lot of banks are requiring you to have a business current account with them before they will allow A lender to apply to them.
This isn't quite in the spirit of what the government announced when they set the scheme up, but I think there are a couple of practical reasons that this has been put in place by the Banks firstly because if a borrower has a current account with It gives an account from which to take the repayments but also the banks need to go through the usual kyc anti-money laundering and fraud checks before they can approve the lending and they simply can't do that in the time scale that the government has given them for approving these loans.
What the government requires is that the loans are turned around from application to approval within a period of 48 hours and they just don't have the capability to get all the kyc sorted in that 48 hour period so what they're doing is putting in place this requirement to hold the account. So once they got the account opened it can then meet the government's requirements of turning a loan application around in 48 hours.
So this scheme will work best for borrowers who have got their main bank account with one of the eleven lenders that has an accredited to provide about about loans at this stage just in terms of the time scales that this works too. I've spoken to one client who applied for the loan when the scheme opened on the very first day on the 4th of May and they had received approval of their land by four o'clock that afternoon.
And that fits with the government information that we've had that 69,000 applications were approved on the first day and I understand the world around a hundred thousand applications. So nearly three quarters were approved on the first day. So the best thing about this is that it does appear to be a very quick way to get a much-needed cash boost for your business.
The other benefit of this scheme is that the lender cannot ask for guarantees or in the case of a sole Trader or partner can't enforce the loan against that person as principal residence or vehicle?
They're asked their personal assets would normally be at risk in relation to business lending, but the government has specifically put in place this restriction to stop the banks in force against their large personal assets.
The loan is available to pretty much all businesses from all sectors, except a very few exceptions and he's exceptions actually apply to all three of the different loan schemes. So the people the businesses that can't apply our state schools insurance companies and public bodies.
The loan is made on a self-certification basis and borrows required to confirm a number of things the business must be a uk-based in its business activity and the business must have been established by the first of March 20 20 the business you have to confirm as part of the application that the business has been adversely impacted by the Coronavirus.
The business must not currently be using another government bat coronavirus loan scheme, but what you can do is use the business the bounce-back scheme to refinance a facility. They've been taken out undersea bills, which is a slight exception to the general rule that you can't use I'll be using any other loan scheme.
The business must be in bankruptcy liquidation or undergoing any sort of debt restructuring.
At least fifty percent of its income has got to be from Trading activities rather than from other Investments such as commercial property renting that kind of thing.
The loan is available to companies LPS and Partnerships and sole Traders so pretty much to all business entities and the load has got to be used for the purposes of the business. It definitely isn't to be used for the personal gain of the directors.
There's also one further requirement that the business mustn't have been a difficulty as at the 31st of December 2019. If it was designated as being in big difficulty at that time, there will be further restrictions on the amount that can be borrowed and what the phone can be use for and specifically in those circumstances. The government has said that the loan can't be used for export activities.
There are a few other confirmations that have to be given because the loan relies on self-certification.
The borrower has to confirm that they understand that the losses may be incurred result of borrowing the money that it will have an impact on their credit rating that there may be a firm Financial Risk to personal assets. Although not their primary residence or any personal vehicle and that there is reduced consumer protections available.
And various other data protection consents and what borrowers need to understand is that this isn't going through any normal Bank affordability process. The onus is fully on the borrower to decide that they want the money that they need the money rather than in the usual application for a loan where it is up to the bank to ensure that the business can afford alone and to be responsible lender. So essentially the credit process is turned.
Round and it's for the borrower to decide whether it can afford to repay it and not for the bank and what this means is that the borrower has waived all of the usual credit approval for formalities and specifically what the government have done is that they have discipline. I'd the provisions of the consumer credit act that would otherwise apply to any of these loans.
So basically there is no formal consumer protection, its borrow at your own risk, essentially, but that's why the amount of the loan is wanted to 50,000 better take the government's made of made a decision that boring up to 50,000 for a business is probably going to be affordable for the most businesses going forward.
I'm just to reiterate briefly that the only checks the banks will carry out is anti-money laundering know your client and four checks, but nothing else will be done to check essentially that the business can afford the loan.
So that was pretty much the bounce back loan scheme in a quick run-through. Now, I am going to move on to the coronavirus business Interruption loan scheme or see bills which has been up and running for over a month now.
so the new bounce back scheme has meant that there are some changes to the see bills loan Arrangement and that that main ski change is that there is now a limit on loans of 50001 pounds whereas before there wasn't any sort of a limit and what I would say is that if a business has borrowed less than 50,000 pounds undersea bills, they would be much better off refinancing it into a bounce-back loan as the interest rate is lower and it would also not cost them anything in terms of fees to make the change because no fees can be charged for the bounce back loan.
There is one slight exception to what I just said is that it will still be possible to get a siebels loan that's less than 50,000 for asset Finance or invoice Finance because there are the only loans available under bounce-back are straight term loans.
Now in terms of the lenders that are available for this there are over now over 50 accredited lenders, there were originally 40 but another 10 or so have been authorized during the last month to also provide these loans which means that they see bills loans are much more widely available from a much broader range of lenders than any of the other sorts of loan schemes and of the three schemes that are available. This is most definitely the most flexible and the most widely available.
But I would actually say that I would expect more out sparklers to be granted overall because access to that scheme so much easier and quicker than see bubbles.
So just a reminder of the key provisions of the see Bill scheme businesses can borrow up to five million pounds.
The loan period can be for up to six years, which is just the same as the bounce back scheme and it's available to businesses with a turnover of up to 45 million pounds per year.
Bologna's interest rate for the first 12 months. So the government will cover the interest for that period And I think this was originally six months, but it's now been increased to 12 months and again mirrors the bounce back scheme in terms of interest rates. This is not like the bounce back scheme.
So interest rates will be exactly the same as they were before the before the crisis and banks are entitled to price their products in accordance with Usual procedures which again is Stockholm to start contrast for the about asking just in terms of the lending rates that I have seen available. These generally are looking like they are up to about 6% over base which is which is you know, which is quite a quite a hefty interest rate on these on these loans.
The government has said that there can't be any personal guarantees required for Lending under 250,000 and the government will guarantee 80% of the loan, but the bank may still take security for these loans in the normal way such as debentures and other sorts of charges.
Again, these loans are only available for UK based business activity.
But probably the most subjective criteria of all that the borrower has to fulfill is that they must fit all the lenders usual borrowing borrowing criteria, that would have been in place if it weren't for the coronavirus outbreak and the loan must or the borrower must prove that the loan is we payable in the short to medium term and the evidence that we have seen is that this is where a lot of For Alice are finding difficulty in giving enough detailed financial information to lenders to ensure that they can.
Tick this box and prove essentially affordability as with about vac scheme. There are a number of exclusions those that can't borrow our banks insurance, but that doesn't include insurance brokers who are included who can who can still apply public sector bodies schools membership organizations and trade unions.
I miss this is pretty much the same same list as for the bounce back scheme and one note of caution that I would say that what we're seeing coming through on the schemes that we have been advising on undersea bills is that there may well be a early repayment penalties now, they can't be any of these with the bounce back scheme.
But with see bills we are seeing repayment penalties put into the loan documentation if a borrower decides that they want To pay back the loan before the end of the term for that is that is quite a point that should be noted because it can it can be one percent of the loan amount so it could be relatively costly for the borrower.
I'm just to say that Shakespeare Martin at we have a fixed fee product for any borrowers that are looking at entering into the sea Bill scheme where for a very discounted price. We will review and report on the loan Arrangement and any security documentation just to give you peace of mind before you sign up to it. So if anybody's interested in that we can let you have further details of that after the webinar moving on then to the large loan.
Hakeem I will just give this a brief run-through as it is quite a large and complex scheme businesses with a turnover above 45 million and up to 250 million can apply for a loan of up to 25 million.
Businesses with a turnover above 250 million imply apply for a loan of up to 50 million.
The scheme has been expanded to cover businesses with turnover Abarth 500 million as well who were originally excluded by the government's initial proposals because they weren't large enough to qualify for an even larger scheme that the government has brought in which is the Bank of England's covid corporate financing facility, which is Regret investment gray companies, so These loans on to the large loan scheme are only available for a much more limited period of time but they're available for three months and up to a maximum of three years. So half of the the term that you can get under the sea Bills or the bounce back. But under this scheme, you could get term loans you can get over drafting an invoice discounting and asset-based lending. So it is quite a quite a large range of products that are available.
And as with the other schemes personal guarantees can't be required for loans of over can only be required or loans over 250,000 pounds, but what they can't be required for is any more than 20% of the loan which essentially is the bit that is not guaranteed by the government.
So any business that is looking to take out one of these loans will find that it's going to be a pretty significant and bespoke financing facility on although they are made available pursuant to the government scheme that is likely to be a need for quite a lot of negotiation on the more detailed terms conditions that the loan such as events of old and security requirements though obtaining one of these loans is likely to take much longer than either anything under the sea bills or The bounce back and each load will need to be tailored to meet the applicant businesses individual circumstances.
These loans are also only available from a limited panel of lenders because of the likely size and complexity of the loans that are involved and also the ability of the lender to deal with them in a in a timely manner. Although definitely not as quickly as the Bills or the bounce-back seen the difference or the biggest difference with this scheme is that there are no payment holidays available or assistance from the government's in paying interest for the first 12 months or any of the fees. So lenders will be able to charge fees.
Useful providing the facilities in the usual way but the government's 80 percent guarantee does cover the fees interest and principle that is repayable under under these loans. Currently. There are just about ten accredited lenders, which again is pretty much just the High Street banks that that can make these these loans available under the government scheme.
So that pretty much brings us to the end of the webinar. I hope that you have found what I've had to say helpful and useful in the current circumstances. If there's anything that you would like further information on or you have a specific question or query that you'd like to discuss, please do let me know and I would be very happy to help.
Finally just to let you know, we have launched a free legal help line giving you direct access to a senior team of experts for free legal guidance over 20 minute video. Call details are on the screen if you would like to book a session, and thank you very much for listening today. Goodbye.