A couple of tweaks couldn’t improve a scheme that was flawed in its design and its execution. For weeks the Chancellor resisted changing his CBILS, despite criticisms from the business community. Until he did. Last Monday the Chancellor a new Micro-Loan facility for the smallest businesses. Some of the details are missing, but here’s what we know:
- Loans available from £2,000 to £50,000, but limited to 25% sales.
- Loans will be 100% guaranteed by the government
- The application process will be simplified and loans will be paid out “in days”.
- Key loan terms include:
- No fees
- No interest in first 12 months
- No repayments in first 12 months
- Maximum term: 6 years
- Loans will be available through participating banks from 4 May
What we don’t know: This new loan facility addresses some of the main flaws of the CBILS loan facility and could become a very welcome lifeline for small business. However important questions remain:
- What financial information will businesses need to provide with their application? We understand that no forward looking information will be required. That will save much time preparing forecasts which would have been meaningless in a Corona environment. But businesses will almost certainly be expected to provide historical financial information such as signed account for previous years and latest management accounts.
- What are the loan terms? We don’t know how much interest will be charged after the 12month period ends and if there are any early redemption penalties.
- As with CBILS, the banks will administer the scheme. Will they cope with demand? When CBILS was announced the banks were saddled with a huge administrative burden of processing loan applications. They had to organize themselves in a short period of time. In the event they struggled. Some of our clients have been waiting for 4 weeks to hear about their loan applications. We are not confident that the banks will be ready when the flood gates open on 4 May.
What to do now:
- Decide if this is for you. Not everyone will want to have a loan.
- Work out how much funding you need. You should build in a contingency to allow you to weather shocks. Assume that you only get one shot at this and that you can’t go back for more.
- If the loan you are likely to receive is not going to be enough to see you through the crisis, then you should speak to you accountants now.
- Prepare financial information: Now is the time to get your management accounts up to date. The ability to provide good quality financial information will go a long way to enhance your credibility as a borrower. Ask your accountant for help.
- If you intend to phone your bank on 4 May to apply for the loan bring a kettle, some biscuits and perhaps a packed lunch…
We hope this has helped you. Please refer to the .gov website for updated information (https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan). If you would like to discuss your options further please contact us at 01925-653 666 or at firstname.lastname@example.org
The rules for the Employee Job Retention Scheme are subject to change as the government/HMRC issue further guidance and clarification. While we make every effort to make sure this guide is accurate and up to date, you should take professional advice before acting on the information provided here. If you contact us, we will be happy to help. Beans cannot take responsibility for actions taken and losses incurred as a result of actions taken or not taken based on the information provided here.