The Government's Bounce Back Loan Scheme aimed to give businesses, struggling amidst the pandemic, a fast injection of cash to stay afloat. However, as Robin Tait explains, the sheer numbers of those applying for the BBLS have the lenders suspicious and consequently, has resulted in negative implications for future finance applicants.
Update: Applications for the Government’s Bounce Back Loan Scheme are now closed.
As the country emerges from lockdown, and the majority of businesses resume trading, we are beginning to see the UK economy pick itself up and soldier on.
The numerous incentives announced by Rishi Sunak in April 2020, including the Job Retention Scheme, Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS), have undoubtedly reduced the devastation that widespread unemployment and insolvency would have caused.
What is the Bounce Back Loan Scheme?
The BBLS allows small businesses (set up before February 2020) to apply for a business loan up to £50,000, at 2.5% interest and with no repayments for 12 months. Typically, you'll receive the funds into your business account within 24 hours. At the beginning of July, there were over one million successful BBL applications, with total lending at £30.93 billion.
When applying for a BBL, you sign a declaration stating that "your business been directly impacted as a result of COVID-19". The likelihood is, the impact will be visible in your business accounts, especially to anyone reviewing them over the next couple of years, such as a lender.
Where are issues arising around the Bounce Back Loan Scheme?
For the majority of small businesses owners taking advantage of this scheme, it has honestly been to protect their business during this challenging time. However, there have also been a significant number of applications from others taking advantage of a cash injection with relatively cheap borrowing.
Just as with Mortgage Payment Holidays, lenders have grown wise to this miss-use of emergency financial schemes. An example of this is using a BBL as a deposit for property investment, which lenders will refuse to accept. They've significantly increased due-diligence to protect financially unstable clients from taking on too much debt, and to manage their own risk better. Consequently, when small business owners apply for property finance, whether via the business or personally, lenders are asking a lot of questions.
In the lender’s view, if your small business has been “directly impacted” by coronavirus, there’s a strong possibility that your personal finances have too. Therefore, in order to get an understanding of your full financial profile, they’re going to want to know how sustainable your business is and how much it has affected you as an individual, requiring more documentation and a likely longer underwriting process.
I needed a Bounce Back Loan - can I still get finance?
Yes, probably. As usual, access to finance depends on your individual circumstances; however, we certainly can help find finance for you even if you've had to use a BBL to keep your business afloat. Lenders will want to see accounts (from a certified accountant) that show how the pandemic impacted your business, and that it is now returning to a profitable level. Be prepared though; they will ask considerably more questions about your background finances than you might be used to.
If you’re looking for property finance, whether commercial or not, our consultants will be able to advise on and source options for you. Give them a call today on 0345 345 6788 or email firstname.lastname@example.org.
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29th July 2020