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COVID-19 – Small business bounce back loans – what we know

Images by Gareth Jones

Small businesses will benefit from a new fast-track finance scheme providing loans with a 100% government-backed guarantee for lenders, the Chancellor announced on Monday (27th April).

Rishi Sunak said the new Bounce Back Loans scheme, which will provide loans of up to £50,000, would help bolster the existing package of support available to the smallest businesses affected by the coronavirus pandemic.

The government say scheme has been designed to ensure that small firms who need vital cash injections to keep operating can get finance in a matter of days.

The government will provide lenders with a 100% guarantee for the loan and pay any fees and interest for the first 12 months. No repayments will be due during the first 12 months.

Morecrofts partner and commercial solicitor, Donal Bannon, said: “In theory, this is an excellent offering, but businesses need to be aware of the longer term cashflow issues it could cause.

“Immediate cash injections are crucial for so many businesses at the moment, and the 12 months relief on repayments will provide comfort, but the next year will be a battle for most organisations trying to restore income to previous levels. When it comes to making repayments this could have a negative impact. It is also important to remember that the business is primarily liable to repay the loan and the Government guarantee to the banks only kicks in after the lender is unable to recover the loan from the business.”

According to the government, the loans will be easy to apply for through a short, standardised online application. The loan should reach businesses within days- providing immediate support to those that need it as easily as possible.

The Chancellor of the Exchequer, Rishi Sunak, said: “Our smallest businesses are the backbone of our economy and play a vital role in their communities. This new rapid loan scheme will help ensure they get the finance they need quickly to help survive this crisis.

“It’s encouraging to see that the chancellor has listened to businesses, particularly smaller business owners – but anyone who looks to benefit from this needs to ensure they are prepared for the repayments in the long-term”, added Donal.

The scheme will launch for applications on Monday 4 May. Firms will be able to access these loans through a network of accredited lenders

Bounce back loan eligibility

You can apply for a loan if your business:

  • is based in the UK
  • has been negatively affected by coronavirus
  • was not an ‘undertaking in difficulty’ on 31 December 2019

Who cannot apply

The following businesses are not eligible to apply:

  • banks, insurers and reinsurers (but not insurance brokers)
  • public-sector bodies
  • further-education establishments, if they are grant-funded
  • state-funded primary and secondary schools

For more information on the Bounce Back Loans, visit https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan

To find out more about how Donal Bannon can help your business, visit his profile here

 

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