Mackenzies Chartered Accountants
Maidstone and Newport Isle of Wight
Issued 4th May 2020
Covid Bounce Back Loans available from your bank
This new scheme was announced by the Chancellor last week and launches today, Monday 4th May. This is what we know about it so far.
An example of the numbers;
The maximum £50,000 loan received during May 2020, no repayments or interest until May 2021. You would then pay 60 instalments of £887 per month, the last of which will be April 2026. The total interest over the term would be £3,242, which is £540 a year.
Terms suggested by Government to the banks
- interest rate 2.5%.
- 100% guaranteed by Government.
- repay up-to 6 years.
- no interest or repayments for year one (we assume no arrangement fee)
- minimum loan is £2,000.
- capped at the lower of 25% of turnover or £50,000.
How to obtain a loan
The process should be live today and you simply need to contact your bank. It is likely that your bank’s website will launch a page dedicated to these loans and the application process will probably be online or through your internet banking facility. If in doubt give your usual contact at the bank a call.
We are told that the application process will be straightforward without the need to provide lots of information. It is likely to be a simple form together with a very basic financial eligibility test supported presumably by you last accounts – you need to be able to show your business was solvent on 31st December 2019.
The Government has said that the application will take just a day or two and funds should be made available to you within a few days.
- available to limited companies, sole traders and partnerships.
- business must be UK based.
- business must not be in financial difficulty (see below).
- business owners must self certify that the business has been negatively affected by Covid.
Financial difficulty test: if on 31st December 2019, the business was subject to insolvency proceedings or has accumulated losses and these accumulated losses exceed half of its share capital (where share capital includes share premium), the financial difficulty test is failed. For groups this is calculated on a group basis. So if the share capital on your balance sheet is £100 and you have accumulated losses, as shown on your balance sheet, which exceed £50, then your fail this test. However, see exemptions below.
In the case of sole traders and partnerships, the test uses proprietor’s capital instead of share capital. Where there is no balance sheet, if the business has a history of profitability it should be able to pass this test.
Exemptions from the financial difficulty test
The financial difficulty test does not apply if the company or business was incorporated after 31/12/16 (is less than 3 years old); if it is more than three years old and fails the test, it might still be able to obtain a loan if it has been trading for less than seven years and can pass the bank’s due diligence regime, which presumably means the bank’s usual lending criteria.
The larger Covid loan scheme includes an exemption from the financial difficulty test, for a loan of less than £30,000, this is because these are considered de-minimis state aid. We’ve not seen this yet as part of the criteria for this smaller scheme, but final details not yet published.
Larger companies (£45m turnover or more than 250 staff)
For non SME companies to qualify, their total liabilities divided by their shareholders’ funds must be below 7.5 or their EBITDA divided by their interest paid, must exceed 1.0.
Mackenzies Chartered Accountants
1 Langley Court, Pyle Street, Newport, Isle of Wight, PO30 1LA
12 Romney Place, Maidstone, Kent, ME15 6LE
Telephone 01983 528130 or 01622 358280
This briefing is for guidance purposes only. Mackenzies Accountants Ltd and the author accept no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommend that appropriate professional advice be taken having regard to your own particular circumstances.