Business Interruption Loan Scheme – How does it work?

As COVID-19 intensifies and emergency legislation is being passed, the Government has put in place unprecedented support for businesses, seeking to protect the wellbeing and health of the UK economy. 

The Chancellor announced in the 2020 Budget that there would be temporary, timely and targeted measures to support the business community. One of these measures is the Coronavirus Business Interruption Loan Scheme. 

The primary objective of the scheme is to support small and medium sized businesses to access financial support from banks up to £5million (previously this was up to £1.2million) during this time of uncertainty and the inevitable cash-flow disruption.

Key Features

The key features of the scheme are:

• up to £5million available to small and medium sized businesses;
• repayment term of up to six years for loans and asset finance facilities and up to three years for overdrafts and invoice finance facilities;
• partial government backed guarantee of 80% against the outstanding balance;
• no fee payable by the businesses accessing the scheme;
• no upfront cost and lower initial repayments with the assistance of the Government covering the initial 12 months of interest and fees due and any lender-levied fees;
• at the discretion of the lender, unsecured lending for facilities of £250,000.00 and under; and 
• the borrower will remain 100% liable for the debt raised through the scheme. 

How does it work?

In order to take advantage of the scheme, you would apply to one of the 40 accredited finance providers (which include all major banks) for funding. You would need to submit a business plan as soon as possible for them to consider with your application. If successful, your advance is then guaranteed for up to 80% by the British Business Bank (which is government owned).

What is the purpose of the guarantee?

The Guarantee minimises the associated risk to your lender of a default on the loan, providing them with the reassurance that should you fail to pay the British Business Bank will step in. Ultimately, the Government is guaranteeing 80% of the outstanding balance to your lender, subject to an overall cap. However, this does not mean that they are making the repayments for you. The guarantee is a safety net for the banks, you will still need to make repayments as principal obligor however should you be unable to make repayments as they fall due to insolvency your lender has the surety of repayment from the government. I sincerely hope that this would not be the case and that you can continue to trade during this difficult time. Of course, if you are worried about solvency you should ensure that you speak with an Insolvency Practitioner as soon as possible. The sooner they are aware of any difficulties that you may be facing the sooner they can step in and support you and your business.

With the government guarantee behind you and your lender’s risk reduced, it enables businesses, which may be declined for financial support from banks due to a lack of security, the ability to access sufficient support during these exceptional times.

Am I Eligible?

In order to apply for a loan under the Business Loan Interruption Scheme, you must be eligible. That is you must:

• be a business – that is a sole trader, freelancer, body corporate, limited partnerships, limited liability partnerships or other legal entity;
• operate your business through a business bank account in the UK;
• have a turnover of no more than £45million per financial year; and
• have a viable borrowing proposal agreed with the bank where it is considered whether the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

The following sectors are not eligible to apply for the Scheme:

• building societies;
• insurers and reinsurers, this does not include insurance brokers;
• the public sector; and
• employer, professional, religious or political membership organisation or trade unions. 

For more information on the Business Interruption Loan Scheme please see blood pressure the government website here. 

More information is also available from the Bank of England here.

If you are considering drawing a loan and would like advice and support on the legal terms and your obligations, please don’t hesitate to contact our Business Services team and we would be happy to assist on 01604 828282 / 01908 660966 or email businessservices@franklins-sols.co.uk.