With an estimated 25 per cent of Britain’s businesses not trading at the moment due the coronavirus crisis, and with just 16,000 loans issued under the government’s Coronavirus Business Interruption Loan Scheme (CBILS), a simple, easy-to-access and affordable loans scheme for small firms was much needed – and this week Chancellor Rishi Sunak came riding to the rescue.
Unlike the much-criticised CBILS, which only offered an 80 per cent government-backed guarantee to lenders, and which consequently saw banks implementing their standard stringent application processes, Mr Sunak’s ‘Bounce Back’ loan scheme offers a 100 per cent guarantee – and, crucially, will not require a forward viability test to access.
This means that businesses will not have to produce cashflow forecasts to apply, a key stumbling block to other schemes. Instead, the loans will be accessed via a short, standardised online application, which means that many more applications will be approved – and funds should reach businesses within days.
Only businesses which were an ‘undertaking in difficulty’ on 31st December 2019 will be refused a loan. Quite what this means has not yet been explained, but in practice it seems clear that most applications will be successful.
Small firms can borrow between
£2,000 and £50,000 (although this figure is capped at 25 per cent of turnover),
with no interest or loan repayments in the first year. We are promised that government will work
with lenders to agree a low rate of interest for the remaining period of the
loan, although what that figure will be is not yet clear.
When we approach an easing of lockdown, many of those small businesses which are not trading, or which are trading far below capacity, will need funds to start up again, whether for stock, marketing, or simply to cover regular outgoings.
So the announcement of the Bounce Back loan scheme is timely, and an indication that the Chancellor is listening to the concerns of the small business community and taking steps to get cash to the front line where it is needed.
The scheme is open for applications from Monday (4th May), indicating that the Treasury understands the urgency of the situation facing many small businesses. That means the first funds should be transferred before next week is out. With the government reviewing the lockdown restrictions on 7th May, this is potentially just in time for the small firms which are so important for our economy to start the fight back to normality.