With most contractors ineligible to benefit from the main Government COVID-19 support schemes, the new Bounce Back Loan scheme may offer some relief to cash-starved small companies.
Bounce Back Loans
In response to criticism that the UK’s smallest firms have found it hard to access lending via traditional methods or even the Government’s CBIL scheme, the Chancellor has launched a new initiative aimed at providing small businesses with simple and rapid access to loans of up to £50,000 to help them weather the pandemic shutdown.
Bounce Back Loan Scheme – the basics
- Under the terms of the new scheme, lenders will advance loans of between £2,000 and £50,000.
- Like the CBILS (see below), any loans will be interest and fee-free for the first 12 months.
- The Government will provide a 100% state guarantee for all loans issued by lenders.
- Micro-firms can apply for loans up to 25% of their turnover.
- Loans will be for terms of up to six years.
- The government “…will work with lenders to agree a low rate of interest for the remaining period of the loan”.
- Small businesses will be able to apply for loans via a short, standardised online form.
- Cash should be advanced within a few days, providing almost immediate support.
- The scheme should be ready to accept new applications from the 4th of May 2020.
- You can apply for a loan if your business is based in the UK, and was not an ‘undertaking in difficulty’ on 31st December 2019.
- You can’t apply if you’ve already been advanced funds via the CBILS, although you should be able to transfer a CBILS loan to the Bounce Back Loan Scheme, if eligible.
Importantly, the Chancellor has confirmed that lenders will not need to apply traditional business viability tests to applications.
Although many small companies may not qualify for other types of pandemic support (or may not wish to apply), this new initiative may provide welcome relief for contractor companies who have suffered a big fall income over the past few months – with little prospect of any change for some months to come.
More details will be published on GOV.UK shortly.
Coronavirus Business Interruption Loan Scheme
The Bounce Back Loan Scheme will run alongside the original CBILS and CLBILS (for larger firms). Many smaller firms who have been unable to access the CBILS are expected to have more success with the Bounce Back Loan Scheme.
The CBIL Loan Scheme is aimed at businesses with a turnover of up to £45m and covers the entire range of traditional lending options (loans, overdrafts, asset and invoice finance). It temporarily replaces the Enterprise Finance Guarantee.
It is also open to larger companies with turnovers up to £500m may also seek up to £25m of lending under the scheme.
Although the lending itself is delivered by dozens of commercial lenders, it is backed by the Government (via the British Business Bank).
Under the CBILS, the Government provides guarantees for 80% of the value of any loans granted under this scheme. The Chancellor has resisted calls to extend state guarantees to 100% for larger firms, as he has with the new Business Bounce Bank Scheme.
If your business does want to apply for a loan, it must have a “borrowing proposal which the lender would consider viable, were it not for the current pandemic.”
Under the terms of the scheme, lenders aren’t allowed to seek personal guarantees of any form for lending up to £250,000.
The Government will cover any initial fees charged by lenders, as well as any interest charged during the first month of each loan term
What COVID-19 support is available to contractors?
Despite the new Bounce Back Loan Scheme, and delays to VAT and Self Assessment payments, contractors are one of the groups who have ‘fallen through the cracks’ of the various COVID-19 support schemes, to use the words of the Chancellor.
One of the main criticisms of the way contractors have been treated lies in complex definitions of employment vs. self-employment. IR35, for example, aims to treat those caught as employees for tax purposes. But, contractors caught by these rules are not eligible to benefit from employment rights, such as holiday and sick pay.
Similarly, limited company contractors are only eligible to claim 80% of their PAYE salaries if they want to claim from the CJRS. Dividend income isn’t included, even though tax is paid on them.
Most contractors do not want any Government COVID-19 income support, they just want to be treated fairly by the tax system. The Government response to the crisis starkly shows how limited company workers are truly on their own when it comes to support from the state.
Therefore, in return, the state should recognise that contractors are truly ‘self employed’, and not attempt to deem them ’employed for tax purposes’.