Chancellor Rishi Sunak’s new 100% government-backed loan scheme, which will provide loans of up to £50,000 for small businesses, went live on Monday 4th.
Nicknamed ‘The Star Wars Plan’ and subtitled, ‘May the fourth be with you’ by one inventive journalist, the new scheme was created to enable small firms are to get access to 100% taxpayer-backed loans. This after small businesses raised concerns about slow access to existing coronavirus rescue schemes.
The Bounce Back Loan Scheme (BBLS) will enable small businesses affected by the pandemic, to borrow between £2,000 and £50,000, in an initiative described by the Chancellor as “an easy solution for those in need of smaller loans”.
Sunak assured the House of Commons last week that businesses will only need to apply through a short, standardised online application and will get the loans within 24 hours of approval. “There will be no forward-looking tests of business viability; no complex eligibility criteria; just a simple, quick, standard form for businesses to fill in,” he said.
On behalf of many clients, I have looked at just how complex the loan application is. To my surprise, it was a relatively simple two-page application which shouldn’t prove over difficult for the average small business owner to complete.
The basics of the scheme are that businesses can apply for 25% of their turnover online, and the government will pay the interest for the first 12 months.
The terms, of course, did not please many of the more prominent companies. They have cried out for the government to underwrite the Coronavirus Business Interruption Loan Scheme (CBILS). Still, Mr Sunak said that he “remains unconvinced” and doesn’t think it is “appropriate” to provide absolute 100% guarantees.
The Chancellor explained that the £50,000 cap would reduce the risk to the taxpayer while still helping the smallest businesses. “We should not ask the ordinary taxpayers of today and tomorrow to bear the entire risk of lending almost unlimited sums to businesses who may, in some cases, have very little prospect of paying those loans back – and not necessarily because of the impact of coronavirus,” he said.
BBLS Potentially transformational
Unlike the existing loan scheme CBILS, banks will not retain any of the risks for these loans, which could stretch into the billions or tens of billions depending on how long the crisis lasts.
Business leaders welcomed the move, with CBI director-general Dame Carolyn Fairbairn calling it potentially transformational for small firms. “Sole traders, micro-firms and entrepreneurs will now have a simple route to fast finance to stay afloat, without red tape or time-consuming checks,” she said. “Thousands of businesses could be saved by this lifeline. Banks now need to continue their work in overdrive to get the loans flowing faster.”
Dame Carolyn’s comments were echoed by the chairman of the Federation of Small Businesses, Mike Cherry, who said it would “give hope to thousands of firms”.
Is there a downside to the Bounce Back Loan Scheme?
While the scheme is simple and easy to apply for; unfortunately, any applicant who has an existing bank loan is automatically ineligible. However, on the upside, there is no reference whatsoever to any personal liability in the application.
My opinion is, if it’s clear to you that the medium to longer-term ramifications of the pandemic means that ultimately your business is heading down the tubes, then any loan will in effect be ‘free money’.
Continuing issues with CBILS
The Coronavirus Business Interruption Loan Scheme (CBILS), has drawn widespread criticism from both business and accountants. Amongst a litany of gripes, the banks have been criticised for not only being very slow to approve CBILS applications but also for making the loan process far too complicated.
However, the Chancellor said that he had explored other avenues to speed up the CBILS application process, which he will now implement. These additional steps include removing the per lender portfolio cap for the government guarantee and making the viability tests much more straightforward. This second change is significant; firms applying for the new loans now only have to prove that they were viable before the crisis. Not that they will be viable after the crisis.
BBLS: Tax Accountant’s Summary
I consider that the new BBLS will prove a genuine lifeline to many small businesses. Still, the key to the success of the scheme is the banks, who now need to continue their work in overdrive to get the loans flowing faster.
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