Small businesses have been particularly badly hit during the pandemic and the UK Government has come up with a raft of schemes to try to help. One of the most discussed is the Bounce Back Loan. This loan scheme has already helped many businesses, and as the pandemic continues, the government have made some changes to the scheme so that they can continue to support businesses.
However, there have been some changes to enable this continuation which means the Bounce Back Loan may not now be the saviour it was when it was launched.
What is the Bounce Back Loan?
Small and medium-sized businesses have been able to apply for the Bounce Back Loan since it was announced by the government in April this year. Loans ranging from £2,000 to £50,000 are guaranteed by the government, and there isn’t any capital, fees or interest to pay for the first 12 months.
Businesses are limited to borrowing a maximum of 25% of their turnover up to that £50,000 cap and once the 12 months interest-free period is over, interest is payable at only 2.5% per annum.
Bounce Back Loans were designed to support businesses who may not have been eligible for the other support schemes made available by government. The eligibility criteria were deliberately kept simple. Businesses must be:
- Based in the UK
- Established before 1st March 2020
- Adversely impacted by Covid-19
The loans are open to all sectors apart from:
- Banking, insurance, and reinsurance
- Public sector
- State-funded primary and secondary schools
Businesses are still able to apply for a Bounce Back Loan if they fulfil the above criteria – so far, over a million businesses have borrowed over £38bn. However, while the original application process was very straightforward (you didn’t even have to submit your business accounts), things appear to have become more complicated. Banks are now asking for an increasing amount of information, making the process take longer than it was before – eating up much of that extended deadline.
What Has Changed?
It’s been widely reported by many businesses that the impact of Covid-19 has been for a much longer period than was initially anticipated and so much greater levels of support are needed. It’s something we, as small business accountants, have seen for ourselves while supporting our own clients through the pandemic.
The Government’s response to support businesses throughout this ongoing crisis has been to make two key changes to the Bounce Back Loan:
Deadline Extension: The applications deadline has been extended to 30th November to allow more businesses to take advantage of the scheme. This is particularly useful for businesses who have weathered the storm so far but are now starting to struggle.
Term Extension: Businesses who have successfully applied for a Bounce Back Loan will now have longer to repay it. Originally, borrowers had 6 years in which to pay back the loan interest-free. This have been extended to 10 years, and will be automatically applied to new loans. If you have received your Bounce Back Loan already, you may be granted the extension automatically by your bank, or you may have to apply – this depends on the individual banks.
What Does This Mean for Small Businesses?
On the surface, these changes seem positive, giving businesses more time to apply for what could be a vital lifeline, with longer to pay it back. The extended terms make the repayments more affordable and helps to maintain cash flows as business starts to return to normal.
However, these changes are only positive if businesses get to benefit from them. If there are more obstacles in the way, small business owners may never actually get the loan amount. To support our clients fully, we want to know why it has become a longer and more difficult process.
Failure, Fraud And A Lack Of Funds
There are fears that much of the money businesses are loaned under the Bounce Back Scheme may not be repaid. The National Audit Office has warned that this could be the case for up to 70% of the loans extended, either due to businesses failing to recover, or due to fraud. Ultimately, this results in higher taxes for all of us as the government has guaranteed all the loans.
The demand for the Bounce Back Loans has been huge, with applications far outstripping the demand in many cases. Coinster, an Isle of Man based lender, received applications for £162m of loans within the first 72 hours of launching, but only had £10m of capital available to lend under the scheme. This means approximately 1 in every 16 applicants walked away empty handed.
Impact on Small Businesses: Twenty-eight banks were approved to lend under the Bounce Back Scheme, but now many are no longer offering the loans, or are keeping the offer exclusively to their own customers. Even for those customers with business accounts at a participating bank, the process is taking longer, and more applications are getting refused.
One work around could be to open an account with another bank, but even this isn’t as simple as it seems.
Banks are getting overwhelmed with applications for new business accounts and are carrying out more checks than before thanks to the increased risks of fraud and failure. This means that the process of opening a business account with a new bank, which normally takes around 4-7 weeks, is anecdotally taking much longer. Once you’ve overcome that hurdle, only some banks are offering Bounce Back Loans to customers who have switched, and some have put waiting lists in place for applications. It is most definitely not the quick and easy process it was to begin with.
Here at Purple Lime, we recommend that if you are a business owner thinking of applying for a Bounce Back Loan, get the process started now. Although the deadline is 30th November, the delays and issues many businesses have encountered will take up much of that time. If you can, the best and quickest option is to start the application process with your existing bank as soon as possible.
However, if you aren’t offered a Bounce Back Loan, or if you’ve been declined for the scheme, there are other options out there. We can help you look at the alternatives and advise on your general cash flow planning to make sure your business accountancy is in as good a shape as possible.
For information or advice about the Bounce Back Loan, or if you just want to talk to our small business accountants about how the various government schemes could benefit your business, get in touch. Just email email@example.com, or call 01249 691 360 to chat with one of our team.