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Author: Sacha Bright & Oliver Murphy
Small businesses struggling to mitigate the economic impacts of Covid-19 will now be able to apply for a 100 percent government-backed loan between £2,000 and £50,000 to help them survive the pandemic.
The Bounce Back Loan scheme, announced on Monday, is a new fast-track finance scheme for smaller firms that will enable them to access funding in a matter of days.
The new scheme will provide lenders with a 100 percent guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months.
The Chancellor explained that the scheme would help bolster the existing package and support available to the smallest businesses affected by the coronavirus pandemic.
This latest measure comes after 490,000 separate grants have been issued by the government, worth over £6.1bn.
But the announcement of the scheme also comes as many across the lending industry have called for a 100 percent guarantee on loans. NextFin has argued that offering such a guarantee would help smaller businesses who are unable to secure a CBIL Loan at an original 80% guarantee because banks do not want to underwrite the risk of the 20% during the downturn of the economy.
In a statement, Rishi Sunak said:
“Our smallest businesses are the backbone of our economy and play a vital role in their communities. This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.
This is in addition to business grants, tax deferrals, and the job retention scheme, which are already helping to support hundreds of thousands of small businesses.”
Reacting to the news, Mike Cherry, Federation of Small Businesses National Chairman said:
“This crucial new initiative should enable thousands of small businesses to access the working capital they need quickly, helping to protect the millions of jobs they provide in every part of the UK.”
In order to be eligible to apply for a loan, a business must:
The scheme is only applicable to small businesses that are struggling as a result of coronavirus. The following entities cannot apply:
Applications are around two pages long and are submitted through an online form from Monday. Only basic details are required to verify the company exists and is eligible. Company directors self-certify that the information they provide is correct and their lender then decides whether or not to approve the loan. Companies may be required to provide a tax return in a small number of cases
Because banks are not on the hook for losses under the scheme, they will not have to carry out their normal full credit checks and procedures which can time be consuming. Some firms had complained of being rejected arbitrarily for a CBILS loan. The new scheme should avoid that outcome.
Further details will be released on the government website soon.
Responding to the announcement, Sacha Bright, CEO of NextFin said: “In short, this is a positive development for small businesses.
However, the government has missed an opportunity to pass on the interest that will be earnt from small businesses to retail investors by not authorising P2P platforms to deploy these loans.
Savers are suffering at the moment with little or no interest being paid on their savings due to the cut in interest rates.
We are aware of dozens of P2P platforms making applications to the British Business Bank to deploy these loans. Why is it taking so long to authorise these companies when they have already gone through the due diligence process by the FCA to operate a P2P platform?”
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.
Tagged: News Covid-19 Small Business
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