Today
(4 May) the Government launched its Bounce Back Loans scheme. There
is no size limit for this scheme but it is particularly for companies
with fewer than 10 employees. The scheme allows borrowing from £2,000
up to 25% of business turnover with a ceiling at £50,000. The loan
is interest free, with no repayment requirements for the first 12
months. It is reported that loans should be approved and money
forthcoming within days. These loans are capped at 2.5% on terms of
up to six years with no lender fees to be levied and no penalties for
early repayment.
These loans do not require personal guarantees, nor
any affordability requirements, other than that you cannot have been
in financial difficulty on 31 December 2019 and cannot be in
bankruptcy or liquidation at the time of application. As the decision
to lend has been taken from the lender, they will not benefit from
consumer protections under the Consumer Credit Act 1974. The scheme
requires application through a short standardised online application
form. So far this scheme is only available until 4 November, though
the government can extend it.
Professional
bodies are not specifically excluded from Bounce Back, but we have
not yet heard that they are being accepted. We do know that at least
some banks are processing existing customers only.
In
addition, professional bodies can now apply for loans under the
Coronavirus Business Interruption Loan Scheme (CBILS), which has a
minimum loan value of £50,001 and a maximum of £5 million. The
loans are backed by the government at 80% but rely on banks to manage
applications. Banks are likely to be using their standard criteria
for assessing applications. This can be difficult for professional
bodies. Professional bodies rely on their reserves to fund unusual
demands on their cash flow, as well as planned investments. Very will
have applied for loans from banks before.
This lack of history with
loan applications and acceptances can be a problem. Professional
bodies are almost exclusively not for profit and surplus is
deliberately
kept low in order to enhance member benefits, rather than maximise
shareholder value. Often professional bodies will plan deficit
balances for some years, using funds from reserves, leading some to
report deficits in 2019. This does not indicate risk to long term
viability, merely planned spend on long term projects and member
enhancements. However, it has been reported to us that banks are
basing their decisions on profits earned in 2019.
For
further information see
https://moneyfacts.co.uk/news/business/how-small-businesses-apply-for-a-coronavirus-bounce-back-loan/#
https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/
We
are interested to hear from any professional bodies who have applied
for Bounce Back Loans as well as CBILS.
Please
contact us at [email protected]
This
is Andy’s third blog on the COVID 19 situation for professional
bodies. The previous two can be found here:
1.
14
April 2020
2.
24
April 2020