Next week, in fact the 4th May if the Government announcement is to be enacted by the banks, a new funding stream will come on-line for business. This is the latest weapon launched by the UK leadership to combat the threat to business life from an extended period of COVID-19 oppression.
It is the most direct and simple mechanism that has been thrown at British business during the crisis, to ensure our economy can bounce back into shape in the not too distant future. It is called the “bounce back loan” and is available to all but a few business sectors and has been launched in the face of the CBIL’s (Coronavirus Business Interruption Loan) application being far too cumbersome for the average business owner, and for the banks, the taint of overtones of previous Government -backed schemes such as EFG.
As an accountant on the front-line of helping businesses get through the first few weeks of lockdown and indeed running our own business, I have seen that CBIL’s applications from all the banks have taken significant time and effort to complete. In so many of these situations, the amount settled on as a loan has come down to thrashing out a deal and an interest rate with the bank manager – not so easy across the internet compared to the board table. Elsewhere, where a business has no banking relationship and only a “virtual” relationship with an internet customer service page, it has been impossible to raise funds.
So it seems that the UK Government has looked at the support needed by smaller businesses and gone for the direct approach to blasting through the lending barriers with their latest offer. Details are still sketchy but given the banks have been instructed to get this scheme fit for purpose in a week, it’s understandable. What we do know is that a business can apply from £2,000 and up to £50,000 or 25% of annual turnover by completing a short web-based application from its bankers. We are told that the application will be so simple that the debt requested will be in your bank within 24hours.
So what’s the catch? It appears that by backing these loans 100% and applying a 12 month interest free initial period and repayment holiday for the first year, the Government is catching the bouncing bomb and throwing it forward into what’s hoped to be a very positive economic future. This arrangement is unprecedented and I’m sure many will feel that this is a “giveaway” too far.
For the borrower, this is an opportunity to have a six year loan of up to £50,000 at an interest rate estimated to be between 2% and 4%, with no commitment to make repayments or incur any fees on entering or exiting the agreement. This means that you can easily gain a new source of finance, replace existing debts or facilities and make sure that you can ride out the storm of COVID-19.
For other businesses with more reserves this could be an opportunity to get some funds in the bank and plan a new project or create a buffer for battling future barriers to doing business. This is the time to seriously consider taking on debt to safeguard against what are very real current and future threats to your livelihood.
Please get in contact with us if you need assistance with any funding applications as we are actively helping clients through the minefield of finance at this challenging time.