Government bounce back loan scheme opens for smallest businesses

Following the Chancellor of the Exchequer’s announcement on 27th April, the Bounce Back Loans Scheme opens for applications from today (Monday 4th May)

Delivered by lenders accredited by the British Business Bank for this scheme, Bounce Back Loans target small and micro businesses in all sectors, providing loans from £2k up to 25% of the business’ turnover with a maximum loan of £50k.

Providing lenders with a 100% government-backed guarantee and standardising the application form is expected to lead to a faster process with many loans becoming available within days.

The Bounce Back Loans Scheme enables businesses to obtain a six-year term loan at a government set interest rate of 2.5% a year. The government will cover interest payable in the first year.

• 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.

Commenting on the launch of the Bounce Back Loan scheme, Tej Parikh, Chief Economist at the Institute of Directors, said “The Government has kept an open ear to businesses, and its continued efforts to adapt its response are welcome. The business interruption loan scheme has started to reach the front line, but small firms have still been having difficulty accessing finance. This additional measure should help more of those firms get the cash they need to see them through the weeks and months ahead.”

“Despite the promise of the new system, taking on debt at such a time remains a difficult decision for any director. Ensuring grants reach where they are needed most will be just as crucial in the weeks ahead.”