The undoubted 'success' story has been the popularity of the Bounce Back Loan Scheme (BBLS), where thousands of loans are being processed and approved by lenders every day for small and micro businesses. Since BBLS was launched under the umbrella of the British Business Bank (BBB), more than 780,000 business have applied successfully for a BBL, with a total of £23.8 billion provided. The figures are quite eye-watering, and now dwarf the Government's Coronavirus Business Interruption Loan Scheme (CBILS) by some considerable margin: CBILS accounting for loans to 48,000 businesses at a value of £9.6 billion in total to 7 June.
In a lot of respects these comparative figures are not surprising. CBILS facilities tend to be at the lender's own market rate, though lenders have been encouraged to keep those rates competitive given that CBILS is backed by a Government guarantee. BBLS facilities are at a fixed interest rate of 2.5%, with no interest or capital to be repaid over the first 12 months of the loan. Although the BBLS loan amount is capped at 25% of 2019 turnover, subject to a maximum of £50,000, lenders are seeing many of their customers refinancing their CBILS facilities across to BBLS to take advantage of the lower cost.
The picture is not entirely rosy, and of course we have to remember that businesses applying for these loan scheme funds are generally in some sort of financial difficulty as a result of the impact of coronavirus. A number of different themes are playing out at the moment:
- A misunderstanding by a significant proportion of businesses who believe that BBLS facilities are a government grant that doesn't need to be repaid, rather than a debt. UK Finance are regularly repeating their mantra that "any lending provided under government backed schemes is a debt not a grant, and so firms should carefully consider their ability to repay before applying".
- On a similar theme, in a recent report published by the Business Banking Resolution Service, one of their key findings was that 56% of respondents said they had accessed Government-guaranteed loan schemes, and 43% of those businesses said they do not expect to repay them, either because they do not think they will be able to, or because they do not believe that the Government will pursue the debt. Although the sample size of 500 businesses is quite small, this is indicative of the potential time bomb ticking away for Banks in 12 months' time when capital and interest repayments under these BBLS loans are due to start.
- There is anecdotal evidence of businesses applying for multiple loans across multiple Banks, either in ignorance of the BBLS scheme rules, or in a fraudulent attempt to access funds whilst guards are down. Indeed the Government is encouraging if not demanding that Banks process these loans quickly and get the funds out of the door as fast as they can, whilst requiring only lip service to be paid to the usual 'know your client' and 'know your business' checks.
- There is a growing prospect of the Government having to set up the equivalent of a 'bad bank' to take assignations of coronavirus business loan scheme facilities, in much the same way as they did in the aftermath of the credit crunch in 2008/2009. Many of the businesses applying for loans under BBLS and other schemes will simply have no prospect of being able to repay them in 12 months' time, and those prospects are diminishing each day that the lockdown measures remain in force.
Some guidance has been made available by the BBB to Banks in relation to BBLS loans to 'groups' and linked accounts. The general steer is that "a customer may apply for one loan for each separate business unless the businesses are a group as defined by having a holding company". The guidance pack includes 18 worked scenarios.
If you are a business in need of guidance on BBLS or any of the other government backed coronavirus business loan schemes, please contact our coronavirus team for assistance.