Coronavirus: new 100% guaranteed loans up to £50,000

The micro loans are available from today - Monday 4 May 2020.  There is an online application.

On 6 May the Treasury announced that more than 69,000 Bounce Back Loans worth over £2 billion had been approved during the first 24 hours of the scheme,

Scheme features

• Up to £50,000 loan: Loans will be from £2,000 up to 25% of a business’ turnover or £50,000, whichever is lower.
• 100% guarantee: The scheme provides the lender with a government-backed, full guarantee (100%) against the outstanding facility balance, both capital and interest. The borrower always remains 100% liable for the debt.
• Interest rate: The government has set the interest rate for this facility at 2.5% per annum, meaning businesses will all benefit from the same, low rate of interest.
• Interest paid by government for 12 months: The government will make a Business Interruption Payment to the lenders to cover the first 12 months of interest payable, so businesses will benefit from no upfront costs.
• No principal repayments for first 12 months: Borrowers will not have to begin principal repayments for the first 12 months, thereafter capital will be repaid on a straight line basis.
• No guarantee fee for businesses or lenders to access the scheme.
• Finance terms: The length of the loan is for six years but early repayment is allowed, without early repayment fees.
• No personal guarantees: No personal guarantees are allowed, and no recovery action can be taken over a principal private residence or principal private vehicle.

There are no forward-looking tests of business viability; no complex eligibility criteria; just a simple, quick, standard 2-page self-certification form for businesses to fill in online.

For most firms, loans should arrive within 24 hours of approval, and the government will guarantee 100% of the loan.

This appears similar to a scheme announced in Switzerland, and aims to bypass the usual credit checks by banks that hold up loans.

The 100% government guarantee will not be extended to other, larger, loans - CBILS and CLBILS - which are currently guaranteed up to 80%,  as the Treasury wants to limit its exposure.

Instead, the new Bounce Back Loans are designed to help those who need it most. And, according to the Chancellor, the £50,000 cap balances the risk to the taxpayer with the need to support our smallest businesses.

Eligibility criteria

Businesses from all sectors can apply for a facility. The business must self-certify to its lender
the following:

• Confirm it is UK-based in its business activity, and established by 1 March 2020
• Confirm it has been adversely impacted by the Coronavirus (Covid-19)
• Confirm it is not currently using a government-backed Coronavirus loan scheme (unless using BBLS to refinance a whole facility)
• Confirm it is not in bankruptcy, liquidation or undergoing debt restructuring

Credit institutions, public sector bodies, state-funded primary or secondary schools and insurance companies are not eligible to apply.

Further information about Bounce Back Loans

• British Business Bank
• BBLS for businesses – how businesses can apply for the scheme
• BBLS: current accredited lenders – list of lenders already providing finance through the scheme
• BBLS for accredited lenders – information for lenders on how to provide finance through the scheme

Further information about the loans is contained in a letter from the Chancellor to accredited lenders.

Interaction with CBILS

Initially, the Coronavirus Business Interruption Loan Scheme had a minimum facility of £25,000, but as a result of this new Bounce Back loan scheme, the minimum facility for overdrafts and loans under CBILS increased to £50,001 to avoid overlap.

Any customer with a CBILS loan or overdraft of £50,000 or less will be able to switch that facility to a Bounce Back loan should they choose to do so over the next few months. This change to the minimum facility size will not apply to asset finance and invoice finance CBILS facilities.

For more support, please check out our Business After COVID Hub.