COVID Blog 3:
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
We are interested to hear from any professional bodies who have applied for Bounce Back Loans as well as CBILS.
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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