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Small businesses from Monday 4th May will be able to apply for a loan secured by the government, in order to help them survive through the coronavirus lockdown.

The new scheme dubbed the “Bounce Back Scheme” will go live on the morning of Monday 4th May with expected applicants to flood in extremely quickly. Businesses will be able to apply for between £2,000 and £50,000 in order to help them stay afloat for the foreseeable future under lockdown conditions. This new scheme is designed to be quicker and more simple than the current Coronavirus Business Interruption Loan Scheme (CBILS).

Barclays have said that they will be issuing the first loans within 24h of applications. These loans are not without their criticism by some businesses, especially those that are at the smaller end of applications as the banks are able to apply their existing lending criteria, meaning it is tougher for smaller businesses to qualify. The CBILS loan offering is available for businesses wanting loans of up to £5m, there for businesses that have a turnover of less than £45m.

Today, Thursday 30th April, the number of those specific CBILS loans agreed was up just over 8500 which was down from over 9000 from the previous week. Worryingly for small businesses, of the nearly 53,000 loans that have been applied for through CBILS, there are still nearly 28,000 awaiting approval – it is this time and delay that could cost some businesses to go under at this difficult period British businesses.

The banks themselves have argued that one of the reasons for the long delays in issuing loans comes in the heavy workload that has come with an unprecedented number of loan applications thanks to the coronavirus lockdown. They have cited such reasons as needing to complete the necessary credit checks as well as social distancing having cut the number of staff that they would usually have had helping to run these checks and approve the loans.

These new Bounce Back loans are cited by the government as being much easier and quicker to apply for; however UK Finance, the organisational body that represents banks has warned that organisations “should think very carefully before taking on new debt” and is urging businesses not to take rash decisions to borrow money if it isn’t absolutely necessary for them to do so.

The loans themselves are mainly aimed at the smallest of businesses and one-man-band style sole traders who have been hit hardest due to the types of industry that they offer; where a lot of trade is undertaken face to face (think every small business from newsagents to make-up artists, electricians to dog groomers). There is however no limit on the size of business that can apply. In order to qualify for the new Bounce Back loans a business must have been trading on 1st March this year and they must not have encountered any financial difficulties as the loans are design not to bail out businesses that are already failing or going bankrupt.

Business leaders have been positive about the introduction of these new Bounce Back loans; the head of the Federation of Small Businesses – Mike Cherry, has explained that it offers real hope for these small firms looking to save their businesses and safeguard the future for their trading after the lockdown has been eased.

To apply, businesses must go through the bank of which they hold a business account. The treasury have then said that the funds for these loans will be available within days which will massively help small businesses struggling with cashflow problems at this time. There is a simple online form which asks 7 questions about your business, including turnover and tax details and also how COVID-19 has affected your business. 

This is a testing time for the business community and keeping afloat is something that most businesses are focusing on more than anything right now. These small Bounce Back loans should help, but when the application process opens on Monday 4th, it will be interesting to see how quickly these loans are processed and how many applications are accepted.

As always with any financial decision, it is important to realise that these are government loans, not grants and that you will have to repay it at some point. The government have pledged to cover all repayments and fees for the first year but this just adds to the responsibility of needing to pay it back. All 50 of the lenders authorised to administer these loans will only be able to charge a flat interest rate of 2.5%. It is important to consider this for your future plans and ensure that you are putting yourself into the best financial position. These loans will last up to 6 years and the tax authorities have already promised that they will keep a close eye on these specific loans to ensure repayments are made.

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