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COVID-19: Bounce back loans for small businesses

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By Peter Stevens

On 27 April 2020, the UK government announced that, between 4 May 2020 and 4 November 2020, UK-based businesses which have been negatively affected by coronavirus will be able to apply for a loan of up to 25% of their annual turnover, with a minimum loan of £2,000 and a maximum loan of £50,000, under the Bounce Back Loan Scheme (BBLS). 

Loans will be repayable over a maximum of 6 years, but no repayments will be due during the first 12 months, and the interest rate is fixed at 2.5% per annum. There are no set-up fees, and early repayment is permitted without penalty. No personal guarantees can be required, and lenders cannot take recovery action over a borrower’s main home or primary personal vehicle although, for sole traders or partnerships, other personal assets may be at risk.

The government will guarantee payment of 100% of the outstanding capital and interest, and will make a Business Interruption Payment to cover the first 12 months’ interest.

Applicants are required to self-declare in the short online application form that they:

  • are a UK limited company or partnership, or an individual who is tax resident in the UK;

  • were established by 1 March 2020;

  • are not in bankruptcy or liquidation or undergoing debt restructuring;

  • are engaged in trading or commercial activity in the UK;

  • derive more than 50% of their income from such trading or commercial activity (unless they are charities or further-education colleges);

  • have been adversely affected by the coronavirus (COVID-19) pandemic;

  • have not already received a BBLS loan facility; and

  • will use the loan only to provide economic benefit to the business, and not for personal purposes.

The standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks will apply.

The BBLS is not open to credit institutions, insurance companies, public sector bodies, state-funded primary and secondary schools, grant-funded further education establishments, or individuals who are not sole traders or partners acting on behalf of a partnership.

If the business was an “undertaking in difficulty” on 31 December 2019, the loan cannot be used for export-related activities and businesses in agriculture, aquaculture or fisheries may not qualify for the full amount.

To make the application process as fast as possible, borrowers will not have the benefit of many of the usual Consumer Credit Act 1974 consumer protections that would otherwise be available to businesses borrowing under £25,000.

Businesses cannot take out a BBLS loan facility if they have already been approved for a CBILS facility, or vice versa, but they can arrange with their lender before 4 November 2020 to transfer eligible loans received under the CBILS to the BBLS.

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