While COVID-19 forced many businesses to temporarily close, it’s important to be thinking positively about the easing of lockdown and return to work. As I write this, some industries such as retail have already been given the green light and resumed trading from 15th June. For others, particularly within the hospitality and leisure industries, there is still huge uncertainty and no firm end in sight.
Many businesses will take a slow, cautious approach to re-opening and that is perfectly understandable. Some will find revenue generation easier than others. Some will be missing some of their team who are unable to return to work due to health or childcare issues, or sadly, they were victims of the virus.
When the time approaches to open the doors to your business again, it’s important to look at your finances carefully. A slow opening may be beneficial if it’s possible. Some businesses have the luxury of opening on a department by department basis, whereas others are forced to take an “all or nothing” approach.
What is the Bounce Back Loan Scheme?
Within the first few weeks of lockdown, the Government announced funding options or assistance, designed to help many businesses through this difficult period, such as various grants and loan schemes including the Bounce Back Loan Scheme (BBLS). Additionally, there have been other measures introduced such a deferring of VAT, rates etc and hopefully, you have already applied for and taken advantage of these.
If you haven’t applied for the Bounce Back Loan Scheme, I recommend you do sooner rather than later. Remember, with any loan, you don’t have to draw down immediately. It’s more important to have the bank agree on it so that you know it can be called upon as and when you need it.
The key features of this loan are:
- Loans from £2,000 to £50,000 (up to 25% of turnover)
- No fees or interest to pay for 12 months following a drawdown
- An interest rate of 2.5% per annum
- 100% backed by the Government
- Maximum term 6 years
- No early repayment fees
- No monthly repayment for 12 months (if required)
This is a very generous loan scheme and every business should apply to ensure they have these funds to drawdown immediately, or on a future date.
Application for the loan scheme is simple. The major banks and some financial institutions will administer the scheme. The business owner is required to complete a short application online and confirm the business is eligible.
Note: There have been a number of glitches which have occasionally resulted in applications being declined before a form has been completed. If you experience this, it is worth getting in touch with your bank to check there hasn’t been an error.
Is my business eligible for the Bounce Bank Loan Scheme?
The initial criteria for the Bounce Back Loan Scheme is simple:
- Your business is UK based
- Your business has been trading before 1st March 2020
- Your business has been adversely impacted by COVID-19
There are also secondary criteria which are important to mention:
- Your business cannot apply for this loan if you have successfully received assistance from the other Government Loan schemes launched at the beginning of lockdown unless it is your intention to transfer this loan into the new scheme.
- Your business was not in difficulty on 31 December 2019.
The “in difficulty” part of this loan is simple to understand. If your business was profitable on 31 December, as evidenced by your accounts, then you are eligible to apply for the loan.
What about those businesses experiencing difficult trading conditions or seasonal businesses?
As with all lending schemes, there must be solid criteria to ensure businesses in extreme difficulty do not gain access to funding. If the business owner has instructed insolvency professionals before this date, and the business is already in danger of closure, they would not be eligible for funding. However, if accumulated losses amount to less than 50% of share capital, then it may be eligible. I suspect these businesses will be subject to further scrutiny and may be required to present additional information to show that it has turned a corner and can trade profitably in the future.
While there is no information on seasonal businesses, I suspect they will need to show how their business operates at different times of the year, providing a good understanding of the trading patterns to the bank. Of course, your bank should know this already from previous trading figures and the way in which cash flows through your business bank account. A seasonal business may also need to present more detail in respect of their forecasts taking into consideration when the seasonal peaks and troughs occur e.g. a business trading in the tourism or leisure sector may still meet with extremely difficult trading conditions for the year and need more time to recover. This should be reflected in forecasts.
Improving your chances of receiving a Government Bounce Back Loan
If there can be any doubt about your business being accepted onto the Bounce Back Loan Scheme, before applying, it’s important to take time and look at your numbers carefully. COVID-19 has had such a massive impact on businesses and the general public. If you supply to the general public, then you’re already aware that many families have been hard hit financially by COVID-19. The question is whether your product or service will attract the same demand as lockdown is eased. If it does, then perhaps drawing up cash flow forecasts based on various percentages of your historic trading figures would be prudent.
As a business owner, you can’t afford to take the risk of winging it. You should know how different scenarios play out through your numbers regardless of whether the bank requires them. You should want to know the impact of, and therefore plan for every eventuality, and monitor your results closely, looking for vital signs to decide which forecast is looking accurate.
Assuming your cost base remains the same, applying these litmus tests to your forecasts allows you to understand the potential funding requirement. This may take one or many measures, assuming your eligibility for one of the Bounce Back Loan Schemes has been met.
Summary
While the Government has made the Bounce Back Loan Scheme easy to access, Banks will remain vigilant and want to ensure your business is eligible most likely to be able to repay the loan in the time allocated. It’s your job as a business owner to take responsibility to complete as much due diligence on your own business, its prospects and how it must finance in the future in order to secure your immediate future and provide a safe and prosperous environment for your team. Good luck.
