Recovery Loan Scheme (updated 3 March 2021)
From 6 April 2021, a new loan scheme will replace the Bounce Back Loan Scheme for small businesses, and also the CIBLS and CLBLS for larger businesses. The schemes were to end on 31 March 2021.
The new version will provide banks with a government guarantee of 80% on loans between £25,000 and £10m. The new scheme may be used for ‘any legitimate business purpose, including growth and investment. The new scheme will remain open until 31 December 2021. Businesses can still use the new scheme even if they have already received support under the existing 100% government guaranteed loan schemes.
Few banks may be willing to offering these new loans with only an 80% guarantee.
The Bounce Back Loan Scheme (BBLS) enables smaller businesses to quickly access finance during the coronavirus pandemic. Small businesses often struggle to access bank funding in the best of times. Banker can be slow to provide loan and may require personal guarantees from business owners.
Small businesses struggling with their finances because of coronavirus can apply for a 100% government-backed loan of up to £50,000, with absolutely no interest or repayments due in the first year.
The scheme enables small businesses to borrow between £2,000 and up to 25% of their annual business turnover with a maximum available loan of £50,000. Loans are provided by the usual loan providers e.g. the High Street banks
The government will full guarantee the loans with the bank. This makes it quicker and easier for small businesses to obtain quick and easy loan finance. There will not be any fees or interest to pay for the first 12 months of the loan. After the first year the interest rate will be 2.5% pa. This is far cheaper than a typical personal loan.
Over a million bounce back loans have been given since the scheme was launched in May 2020.
Currently, the scheme is open for applications until 31 March 2021.
Businesses may have applied for an initial loan smaller than the maximum. They were then unable to apply for an increased loan up to the maximum. However, businesses can now top up their existing loan to the maximum amount. Businesses must top up their loan with their existing bounce back loan provider.
In order to apply for a loan a business must be:
based in the UK
established before 1 March 2020
adversely impacted by the coronavirus
If a business was in financial difficulty on 31 December 2019 then it will need to confirm that it has complied with additional state aid restrictions.
A business cannot apply for a Bounce Back Loan if it has already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS).
The initial loan was for up to 6 years and with no repayments required within the first 12 months of the loan. From 5 February 2021, changes now permit the loan to be repaid early and without any early redemption charges. In addition, the first repayment can now be delayed for an extra 6 months. Businesses now have up to 18 months before they must start repaying their loan, though interest will start from 12 months after the loan was taken out.
More recently, the government has made the repayment rules more flexible. Therefore, a lender must offer:
an extension of the loan term for up to 10 years
permit interest-only repayments for a period of 6 months
a pause in repayments for up to 6 months
To find a Bounce Back Loan lender and find out more details about the scheme you could start your search on the British Business Bank website.