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Launch of the new Bounce Back Loans

BBLS are designed to deliver a quick cash injection into businesses which have been impacted by COVID-19.  Such businesses can borrow up to 25% of their turnover (with a £50,000 maximum amount that can be borrowed). The Government will cover any interest payable in the first 12 months through a Business Interruption Payment to the lender, and lenders will benefit from a 100% government-backed guarantee.

The Government has set the interest rate for this loan at 2.5% per annum and the repayment term is fixed at six years. No repayments will be due during the first 12 months. Businesses remain 100% liable to repay the full loan amount, as well as interest, after the first year.

Who will be eligible to apply for the BBLS?

BBLS open to most businesses, irrespective of the level of turnover, however they must have been established on or before 1 March 2020 and must also meet the following eligibility criteria:

  • The business must be engaged in a trading or commercial activity in the UK at the date of the application, and must have been adversely affected by COVID-19.
  • The business must confirm that they were NOT a ‘business in difficulty’ as at 31 December 2019.
  • The business (and any wider group of which it is part) cannot have already received a Bounce Back Loan.
  • The business (and any wider group of which it is part) must confirm that it has not yet obtained a loan through either the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, or the Covid Corporate Financing Facility, unless that loan will be refinanced in full by the Bounce Back Loan Scheme facility.
  • The business must be a UK limited company or partnership, or tax resident in the UK.
  • The business cannot be a bank, building society, insurance company, public sector organisation, state-funded primary or secondary school, or an individual other than a sole trader or a partner acting on behalf of a partnership.
  • At the time of submitting their loan application, the business cannot be in bankruptcy, debt restructuring proceedings, liquidation or something similar.
  • More than 50% of the income of the business (together with that of any member of any group of which it is a part) must be derived from its trading activity.  This confirmation is not required if the borrower is a charity or a further education college.
  • The loan can only be used to provide economic benefit to the business, and not for any personal purposes.

When does a business meet the “business in difficulty” criteria?

A business is considered in difficulty if met any one of the following criteria on 31 December 2019:

  • Individuals or companies that have entered into collective insolvency proceedings;
  • Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to SMEs less than 3 years old);
  • Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than 3 years old);
  • Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan;
  • A company which is not an SME where, for each of the last two accounting years: i) its book debt to equity ratio has been greater than 7.5; and ii) its EBITDA interest coverage ratio has been below 1.0

How to apply

The BBLS is available through the British Business Bank’s accredited lenders. A full list of these can be found at https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/current-accredited-lenders-and-partners/

When applying businesses will be asked to fill in a short online application form and self-declare that they are eligible for the Scheme.

How long is the BBLS open for?

The BBLS is initially open until 4 November 2020, however the Government has retained the right to extend this.

When does the business have to start repayments?

The borrower is at all times 100% liable for repaying the loan and any interest, however the Government will cover the interest payable to the lender for the first 12 months. The borrower will be required to make full repayments, of the loan and interest, up to the end of the 6 year term as per the arrangement with the lender.

Can a borrower repay early?

Early repayment is permitted at anytime without any early repayment fees.

What can the Bounce Back Loan be used for?

The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.

If the business was a “business in difficulty” on 31 December 2019, then a loan under the BBLS is not permitted to be used for export-related activities.

There are no limits on the amount of the facility that can be used for refinancing.

For further information or advice on how COVID-19 may be affecting your business please get in touch with a member of the Baines Wilson LLP, on 01524 548494 or 01228 552600.

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