Bounce-back loan scheme opens for business – the details

Chancellor Rishi Sunak’s much-anticipated bounce-back loans scheme is open for applications from today.

Delivered exclusively by lenders accredited by the British Business Bank, the scheme, announced on April 27, specifically targets small and micro businesses in all sectors, providing loans from £2,000 up to 25 per cent of their turnover with a maximum loan of £50,000.

The scheme enables businesses to obtain a six-year term loan at a government set interest rate of 2.5 per cent a year, with the Government covering the interest in the first year.

It provides lenders with a 100 per cent government-backed guarantee and a simplified application process is expected to free up cash for many businesses within days.

The Government said earlier it was expecting a surge in applications for the new business loan scheme for the smallest companies when it opens on Monday.

As a 100 per cent guaranteed loan scheme, the price of BBLS is critical to its success

Mr Sunak said: “Small businesses will play a key role creating jobs and securing economic growth as we recover from the Coronavirus pandemic. The bounce back loan scheme will make sure they get the finance they need – helping them bounce back and protect jobs.”

Stephen Barclay, Chief Secretary to the Treasury, told MPs he also expects to see some companies approved for loans under the Coronavirus Business Interruption Loan Scheme (Cbils) switch to the “bounce back” scheme.

The Treasury wrote to British lenders confirming that the scheme (BBLS) would be excluded from stringent consumer protection laws to help speed up the process of getting money to small businesses.

Questions remain as to what will happen if a business cannot afford to repay

“As a 100 per cent guaranteed loan scheme, the price of BBLS is critical to its success: together, we need to ensure that these loans are affordable and accessible. As such, and incorporating a range of data, I have come to the decision that the rate should be set at 2.5 per cent,” Mr Sunak told them.

The British Business Bank website carries a full list of approved lenders. Applications can be made by completing a short application form on a lender’s website, which self-certifies whether they are eligible. Eligible companies will be subject to standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks. Some State aid restrictions may apply to applications.

The BBB is the UK government’s economic development bank, established in November 2014 with a mission to make finance markets for smaller businesses work more effectively.

Questions remain as to what will happen if a business cannot afford to repay. The expert view is that banks will chase borrowers’ assets who default in the normal way but if they cannot recover the money, they can go to the British Business Bank and activate the government guarantee.

The British Chambers of Commerce estimates that 30 per cent of its members could not afford to pay loans back. Suren Thiru, head of economics, called on the Treasury to find alternatives to accommodate them.

At a glance: Bounce-back loans