HM Government has announced a new funding scheme to help businesses affected by Coronavirus. The Chancellor, Rishi Sunak, launched the scheme to help counter a distinctive problem encountered by smaller businesses unable to utilise the Coronavirus Business Interruption Loan Scheme (CBILS). The so-called “Bounce Back” loan scheme is 100% guaranteed by the Government unlike CBILS which is only guaranteed up to 80% with the banks on the hook for the other 20%. However, to help counter this problem HM Treasury is rushing to give banks full assurance in both regulatory and legal contexts that they can borrow to small business without risk.
What’s It All About?
Bounce Back Loans are interest and payment-free loans of up to the maximum allowed amount of £50,000. The Government will pay the costs of the loan for the first twelve months to help businesses focus on growth and helping them weather the economic storm ahead.
Why Are Banks Worried?
This is, however, a sticking point with some banks worried about higher levels of default or fraud thanks to the lower threshold and what this would mean for their business banking operations. Other banks are worried they will face the wrath of public opinion if they lend to businesses who could ill afford repayments even before the Covid-19 pandemic. In addition, some banks are worried they just do not have the staff and infrastructure to help hundreds of thousands of businesses who will now be eligible and will be in desperate need for additional funding.
Treasury Want’s to Fix CBILS
HM Treasury believe the scheme is popular – thanks to the CBILS loophole – and they expect a “major surge” when applications launch on Monday 4th of May 2020. Government ministers also believe many CBILS customers can and will switch to “Bounce Back” loans due to the different rates/risks.
Banks can only lend using this facility if they are already accredited by the UK’s British Business Bank through the CBILS frameworks. This means all the major high street banks but more importantly it does also include “alternative” lenders – which include Funding Circle and Starling Bank.
How Quick is the Application Process?
A two-page application, with minimal checks and balances, available from Monday 4th of May 2020 with the money available to companies within 24 hours. Therefore, banks are worried as they believe this opens them up to the risk of fraud without greater investigative checks and balances. According to a leading insolvency and recovery law firm in London, “no applications should fail as there will be no viability test and no limit on turnover.” This is where the issues lie in relation to the banks’ concern.
What Will This All Do for Small Business
The new funding will help small and microbusinesses access quick cash to help literally keep the lights on and the business a going concern. Banking sector fears are somewhat irrelevant given the default risks are Government assured. There might be a wave of small businesses borrowing as a last chance and then unable to repay but some analysts argue this scheme could help businesses improve cash flow over the next six months.
How Can Prestige Business Management Help?
At Prestige Business Management we can help your business during this unprecedented period of fluctuation and uncertainty. We can help you with a range of business and personal tax and accountancy issues – from furloughing issues to applying for small business schemes including CBILS and Bounce Back loans. We can also sign-post your business towards other funding support services available. Whatever advice or support you need Prestige Business Management can help. Call us today on 0203 773 2927 today.