COVID-19 Business Interruption and Bounce Back Loans


October 28, 2020

The Coronavirus Business Interruption Loan Scheme (CBILS) provides financial support to small and mid-sized businesses affected by COVID-19. It is a British government-backed scheme to help viable SMEs that are losing revenue and experiencing cash flow problems. The scheme is designed to support businesses that were trading successfully before coronavirus but are now facing difficulty as a result of the raging pandemic.

The British government provides banks with a guarantee for 80% of the loan and pays interest for the first 12 months, but the borrower remains liable for 100% of the outstanding debt.

Bounce Back Loan Scheme (BBLS) was introduced for UK based micro and small businesses amid fears that many would collapse before receiving much-needed loan funding. This scheme will allow businesses which are hit by COVID-19 pandemic. To avail the loan with the British government guaranteeing 100% of the advance and also paying the interest for the first 12 months.

Under CBILS, businesses can borrow up to £5 million in finance. BBLS helps businesses to borrow between £2,000 and up to 25% of their turnover. However, the maximum loan available under this scheme is £50,000.

Under CBILS, a business is eligible to avail the loan if it is based in the UK and has an annual turnover of up to £45 million. It also has to show that it has been adversely affected by the pandemic. And it would have been a viable business if there isn't this situation.

Under BBLS, a business is eligible to avail the loan if it is based in the UK and has established before 1st March 2020. It also has to show that it has been severely impacted by the pandemic.

For CBILS, earlier the loan tenure was for 6 years, however now it has been extended to 10 years. The downside is that the businesses need to pay a greater charge in the total interest costs.

Even for BBLS, earlier the loan tenure was for 6 years, however now it has also been extended to 10 years.

For both the schemes, British governments will pay the interest for the first 12 months of the agreement. There is no penalty for early repayment and also there is no need to make any capital repayments during the initial 12-month capital repayment holiday period.

More than 50 lenders are participating under CBILS including many main retail banks. The businesses have to seek out for the suitable lender and inform of the following – borrowing amount, the purpose of loan and loan tenure. 

They will also have to furnish the following documents – 

a. Management accounts

b. Cash flow forecast

c. Business plan

d. Historic accounts

e. Details of assets

The documents required will vary from lender to lender and also depend on the loan amount. If the business is asking their existing lender for a small loan, the process may be automated and do not require all of the documents.

11 lenders are participating under BBLS including many main retail banks. The businesses should approach a suitable lender themselves via the lender’s website. The process is much simpler here. The lenders will ask the businesses to fill in a short online application form and self-declare that they are eligible.

Under both the schemes, businesses from any sector can apply, except:

1. Banks, insurers and re-insurers (but not insurance brokers)

2. Public sector bodies

3. State-funded primary and secondary schools.

Both the schemes are backed by the British government but were launched on different dates and as such had different closing dates. Initially, it was announced that each scheme would originally run for six months. CBILS was due to end on 30th September and BBLS was supposed to end on the 4th of November. However, on 24th September The Chancellor of Exchequer Mr Rishi Sunak announced extending the deadline until 30th November 2020 for both these schemes. This announcement brought in much cheer especially to those businesses who had not yet applied for these schemes as more businesses now have the opportunity to apply for loans that will help them to continue with their business during the challenging times ahead.