The Bounce Back Loan scheme (BBLS); Supporting UK businesses during coronavirus (2)

Launched officially on 4 May 2020, the Bounce Back Loan Scheme (BBLS) is designed to help individuals and businesses who have been unable, or unwilling, to access the Coronavirus Business Interruption Loan Scheme (CBILS) The primary advantages of the BBLS are that:

1. It offers a 100% Government backed loan guarantee
2. It is interest-free for the first 12 months (the Government pays this)
3. It is repayment-free for the first 12 months
4. Interest is fixed at 2.5% p.a.
5. The lender cannot enforce the loan against “personal” assets [such as the main home, personal vehicle]

As with all borrowing/lending decisions, there are various fundamental issues to consider.

Lender

Although the loan is 100% guaranteed, lenders will need to carry out a proper process to assess whether they believe that:

• it is likely that the borrower will be able to repay the loan
• the loan is affordable

We are expecting lenders to undertake a robust financial due diligence process that may involve forecasts and a business plan, plus information about other financial commitments – in effect, a normal lender’s assessment of the viability of making a loan. Find out more here.

Borrower

The borrower must be able to self-assess and declare to the lender whether:

• it was not already “in difficulty” at 31 December 2019
• it is impacted by coronavirus
• it is trading and derives more than 50% of income from trading

As with all decisions to apply for funding, the borrower will need to consider the risk to the business and, for unincorporated businesses, the risk to personal assets; and whether, in view of the risks, the borrower considers it a sound commercial decision to seek such a loan. And finally, there is still considerable uncertainty surrounding the long-term business and economic impact of coronavirus.  That uncertainty will extend to the amount of borrowing required in order to sustain the business.  Borrowers will need to consider carefully how much to borrow – again, it is not possible to predict whether additional funding will be made available if an economic downturn continues for a protracted period, therefore they may need to be an element of ‘contingency’ built in to the borrower’s requirements. We are always available to help support clients in their borrowing decisions.