Bouncebackability – The Bounce Back Loan Scheme
It was Iain Dowie, the then Crystal Palace manager, who in 2004 first used the word “bouncebackability” and it’s established definition is now “the ability to recover from bad circumstances”.
As a result of Covid-19 there are currently businesses throughout the UK who are having their bouncebackability severely tested and as such the Bounce Back Loan Scheme is probably well named and hopefully it will help the majority of the businesses who utilise it to recover from some very bad circumstances.
The scheme is designed to help those businesses (whether they be small companies or sole traders) who have been adversely affected by the coronavirus but can’t take advantage of the Coronavirus Business Interruption Loan Scheme (CBILS). Participants can borrow from as little as £2,500 up to a maximum of £50,000 (or 25% of their turnover if less).
Unlike amounts borrowed under the CBILS the bounce back loans are 100% guaranteed by the government and as such the banks who are providing the loans are not requiring any security from the borrowers. This has made the loans incredibly attractive and there were over 100,000 applications for the loans in the first day resulting in over £2bn of bounce back loans being agreed within the first 24 hours of the scheme opening.
The Loans are being provided by a number of banks but the terms are the same, 6 year terms, the first 12 months are interest free and then after that the interest rate is a fixed 2.5% per annum with no fee for an early repayment. Overall this makes the loans great value and some commentators have even advised self-employed workers to utilise the scheme as a form of income support.
All of this is great for the borrowers but questions are starting to be asked about how many of the loans will actually be repaid. Given that there are no real viability tests, there must be a proportion of these loans which are being given to unviable businesses together with a number of fraudulent applications as well. The intention is for there to be retrospective checks on applications (particularly if there is a default) but it will be the taxpayer who will be footing the bill for any of the loans which do not get repaid.
For certain businesses these loans will be a life saver and will hopefully see them through to a time when their business can stand on its own two feet again but there will also undoubtedly be a large amount of taxpayers money being lent out to unsuitable businesses that will never be recouped. Let’s hope that there is lots of Bouncebackability out there and we see the majority of businesses surviving this pandemic so that they can repay these loans and move on to bigger and better things.
At PDT why have plenty of experience of advising companies who are looking to raise finance whether that be debt or equity. If you are looking for an injection of funds to help your business please feel free to get in touch.
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