Having survived the initial changes to your business over the last few months you may now be considering one of the Governments loan schemes to help you through your business recovery phase. We’ll be running through the difference between the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) – we say see-bills and bee-bols…you?
The future of your business may now look very different to how it did in February or maybe it just feels like parts are on pause. Having successfully navigated the initial phase of the pandemic and implemented your continuity plan, you may be starting to think about your recovery plan and the journey forward to your new normal.
In doing so it may appear that you need a loan to support you through. Over the last few months the Government have launched two loan schemes to help, so what is the difference and which one is right for you?
CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME
CBILS was the first scheme launched. It’s actually based on a scheme that has existed (and many would say has failed) since the economic crisis.
The highlights of the scheme are:
- loans can be provided up to £5 million;
- the Government provide an 80% guarantee;
- personal guarantee may also be required for loans over £250,000; and
- the Government settles any interest and fees for the first 12 months.
To be eligible the business must be based in the UK and have turnover under £45 million a year. Full details on the scheme and criteria can be found on the British Business Bank website.
WHAT DO I NEED TO APPLY?
In short, quite a lot! The usual sets of accounts, management accounts and depending on the bank and size of the loan, forecasts. Further, most banks are asking for lists of amounts owed to and from the company and registers of directors personal assets.
For one bank there were 5 forms to complete!
If you don’t have all the relevant financial information and forecasts to hand, we are happy to help out whether it’s just showing you where and how to get it or completing a suitable forecast.
IS IT WORKING?
The scheme has received very mixed reviews. We’ve seen clients receive loans totalling in excess of £1 million since it’s launch, some took around 10 days, some weeks. In both we saw the banks change the application process mid-flow…though this was early on.
Overall it works but banks have not made the process simple.
BOUNCE BACK LOANS
Aimed at smaller businesses, the Government have dictated even further to banks how these loans must work to ensure funding reaches those that desperately need it.
The highlights are:
- loans of £2,000 to £50,000 (max 25% of turnover) over 6 years;
- the Government provide a 100% guarantee;
- the Government settles any interest and fees for the first 12 months;
- no repayments are due for 12 months;
- there are no early repayment charges; and
- interest is set for all loans at 2.5%.
The eligibility criteria is a little more detailed and we suggest you check them out here. A key one to note is that you cannot apply if you had already received a CBILS loan, however it may be possible to transfer if that original loan was £50,000 or less.
WHAT DO I NEED TO APPLY?
Very little! The form should comprise of 7 questions most of which are very straight forward to answer. You do need to know your turnover when applying.
IS IT WORKING?
The scheme has worked very well and we have seen same day payment from one bank.
WHICH SHOULD I GO FOR?
Debt financing should never be taken lightly and it’s very important you discuss this with your accountant before you go ahead. It does need to be repaid! That said, if funding is required the schemes are well designed to mitigate some of the risk.
If your requirement is less than £50,000 the Bounce Back Loan seems a clear winner, easy and quick to apply for and with interest at 2.5%, you won’t often get cheaper lending.
But it’s important to understand what your business needs over a period of time. If it’s more than £50,000 then getting the BBLS will prevent you getting CBILS later and may turn lenders off ‘normal’ loans in the future. So before you jump at ‘free money’ make sure you have a plan in place of how the money will be used and vitally, how it will be paid back.