Small and medium-sized businesses affected by coronavirus can apply for loans of up to £50,000 through the Bounce Back Loan scheme.
Businesses will be able to borrow between £2,000 and £50,000 when the scheme opens on Monday (4 May).
The government will guarantee 100% of the loan and there will be no fees or interest payable for the first 12 months.
Loan terms will be up to six years, with no repayments due during the first 12 months, and the scheme will be delivered through a network of accredited lenders.
The government has said it will work with lenders to agree a low interest rate for the remaining loan period.
Information on how to apply has yet to be published, but is expected shortly.
Participants can apply for a loan if their business:
- is based in the UK
- has been negatively affected by coronavirus
- was not an undertaking in difficulty on 31 December 2019.
The following businesses are not eligible:
- Banks, insurers and reinsurers (but not insurance brokers)
- Public-sector bodies
- Further-education establishments, if they are grant-funded
- State-funded primary and secondary schools
- Any business already claiming funding under the Coronavirus Business Interruption Loan Scheme (CBILS).
If the business has already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, this can be arranged with the lender until 4 November 2020.
Martyn Dobinson, partner at accountant Saffery Champness, said this new scheme will throw a lifeline to many smaller rural businesses who have been unsuccessful in accessing CBILS funding.
“With the scheme to launch on 4 May, most telling will be how quickly the system can deliver cash payments and how receptive lenders will be to processing applications quickly and without the level of checks that have been evident for other schemes, and whether the system can cope with the number of applications anticipated,” said Mr Dobinson.
“For those seeking to access the scheme we recommend approaching your existing bank or lender first as this should further fast-track the application process.”
Andrew Robinson, partner at head of agriculture at Armstrong Watson, said the new loans appear simpler and easier to apply for, especially for smaller businesses in the agriculture and rural sector.
As the government plans to guarantee 100% of the loan, applications will be quicker because there will be no need for the bank to obtain security from the borrower, which is a huge advantage and a key difference to the CBILS, he said.
The main qualifying criteria seem more straightforward to meet with the Bounce Back loans than with the CBILS, he added.
The six-year loan period gives breathing space to see businesses through the crisis, with businesses then able to reschedule their borrowings when things return to normal.
“My concerns are whether the banks can operate at the speed required and what the underwriting criteria will be as, for example, at the minute there is no definition of ‘undertaking in difficulty’,” Mr Robinson said.
“Businesses should think carefully before taking any debt in to the business to ensure it is the right thing to do, and it is always worthwhile to speak with their professional adviser.
“As with a lot of the government schemes, liabilities are being kicked down the road and in 12 months’ time there will be a lot of businesses having to dig deep when repayments start to kick in.”