Bounce Back Loans (BBL's) - Key features of the scheme

The new Bounce Back loan Scheme (BBLS) has opened for applications for businesses in the UK and we've pulled together some of the key features and a selection of the questions that we've had so far.

• Loans are from £2,000 to £50,000 and the amount you can apply for is capped at 25% of your Turnover in the calendar year 1 January 2019 to 31 December 2019.
• Interest is capped at 2.5%
• You can borrow over a term of 6 years with a 12 month capital & interest holiday

Here are the most commonly asked questions from our clients in relation to the "Bounce Back Loans" that we've had over the last few days:

• Do I need to apply to my own bank for the loan?

Unlike Business Interruption Loans (CBILS), you do not have to go to the bank you currently use. The only issue with approaching a new bank for BBL’s would be the time needed to set up a new account. Businesses can set up feeder accounts (they close once you have received the BBL) but this does add additional time on to the application.

If you’re looking for a simple process, approach the bank you have a current account with. BBL’s are simple application forms that are completed online.

• How much can I borrow and how do I work out how much I need?

The stock answer here is the lower of 25% of Turnover in the calendar year, 2019 or £50,000. Whilst it may seem easy at the moment to take on additional debt you need to mindful that that in the long run, it may give you and your business(s) a real headache. It’s important to remember BBL’s are incredibly easy to access and are available until 31st March 2021.

We advocate taking this opportunity to pause (where possible) and assess short term cashflow in detail to pin down the right amount of BBL required. If you have reviewed cashflow over the past weeks and months, things are evolving constantly and we recommend you revisit the exercise again.

When completing a cashflow exercise, think about the period between now and Christmas, draw on what you have learnt from discussions with your team, peers, customers, advisors, suppliers and so on, a lot of judgement is required in plotting your expected income and expenditure over the period.

Although there is no right or wrong way to model cashflow, we recommend assessing cash burn when looking at working capital requirements. The most simplistic way of calculating cash burn is the following:

• Plot expected cash inflows and outflows on to an excel sheet on a weekly basis and over a set period. Seven months to Christmas is a sensible timeframe
• If you are struggling to predict exact cash inflows (i.e sales pipeline) over that period, work on multiple scenarios. Remember to drawn on discussions with customers, consider changes in time they may take to pay, etc.
• Ensure you have included all payments of loans, other debts and that you have included VAT (where applicable) on revenues in and payments out. Also, do any suppliers require deposits up front?
• Using the spreadsheet you have created, you should now have figures for both your opening cash balance (now), and forecasted closing cash balance (Christmas)
• Cash Burn is calculated as (Opening Cash Balance + Closing Cash Balance) divided by weeks in the assessed period (cash burn per week) or months (cash burn per month)
• Your sheet should also highlight your lowest forecasted cash balance

Worked example

If opening cash in week 1 is £30,000 and closing cash in week 25 is £-90,000, cash burn would be £120,000/25 = £4,800 or £20,000 per month deficit. We must not ignore any weeks, which may fall lower than the closing balance of £-90,000 however. 

An increased cash balance across the period would indicate you do not have a cash burn, and cashflow issues are likely to be limited and you may not need a BBL

• How quickly does the money get paid in to my bank account?

We’ve seen confirmations of loans within two to three hours and bank have communicated that they expect funds to be released in a matter of days.

• What if my business bounces back quicker than I had predicted and I don’t need the money?

There would be no requirement to repay the loan early if your businesses circumstances change for the better. Equally, if you do decide to repay the loan early, there are no early repayment charges or costs associated with doing this.

• Do I need to justify what the money will be spent on?

No, the idea of this loan is that it’s self-certified. Ultimately, you should only apply for the loan if you and your business have been impacted by COVID 19 but neither the bank nor government require you to disclose what the money will be used for. There is no monitoring of the money once paid nor do you need to justify exactly what the money is to be spent on from the outset.

• What if I get rejected for a BBL?

Early indications that around 75% of applications are accepted. There are varying reasons for this but ones we are aware of include:

• Asking for too much and therefore breaching the 25% of Turnover test
• Currently in insolvency arrangements
• Application incorrectly completed
• Failing credit checks
• Business was an undertaking in difficult at 31 December 2019

It’s important to understand the reasons why the application has been rejected as it may be possible to remedy those reasons before applying to another bank.

• What is an undertaking in difficulty?

You cannot qualify for a BBL if you were an undertaking in difficulty at 31.12.19 (or latest annual accounts). This means your balance sheet shows accumulated losses and share capital (plus share premium) that does not cover those accumulate losses two times over.

• I’m a start up, can I qualify?

Yes – if you started to trade on or after 1 January 2019, you should calculate the maximum loan as being 25% of your estimated Turnover from the date your started to trade. For example, if you started to trade on the 1 February 2019, you apply the 25% cap to Turnover from 1 February 2019 to 31 January 2020.

• What if I don’t repay the loan?

BBL’s are another form of commercial lending and are treat exactly the same if payments are missed.

• Can the bank take my home as security or ask for personal guarantee

No, BBL’s are completely unsecured and do not require any sort of personal guarantee or other security.

Summary and making an application

Hopefully you are clear on amount of BBL that you and your business needs, that most of your questions are answered and now it’s time to complete the online application. To help you, here are a list of current BBL accredited funders and you can click on the logo to go to the application page.

When making the application, you will need the following information to hand:

• Bank account details including name on the account, account number and sort code
• Annual company (or group) Turnover for 2019
• How much you want to borrow

If you would like to have a quick chat to us about any of the above, request a call and we will be in touch!