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Government-supported bounceback loans have prompted many British businesses to jump several moves ahead in their long-term strategies.
Among the slew of support measures announced by the Government at the height of the COVID-19 crisis, bounceback loans were somewhat overlooked. Loans are fundamentally less exciting than grants.
But as the economy begins to sputter back to life after several months of no or low activity, bounceback loans have come into their own, providing the means for businesses to adapt to post-peak realities.
The bounceback scheme was announced as a standalone measure a month into lockdown in late April and opened for applications on 4 May.
It offers loans equivalent to 25% of turnover up to a maximum of £50,000 with repayments deferred for 12 months, and the Government covering the interest for the same period.
Chancellor Rishi Sunak seems to have learned from an earlier loan package, known as CBILS, which threatened to become a minor scandal as business after business reported being turned down by banks in their hour of need.
The bounceback scheme, he insisted, would have “no forward-looking tests of business viability; no complex eligibility criteria – just a simple, quick, standard form for businesses to fill in”. He also made clear his expectation that most loans would arrive within 24 hours of approval.
The owners of Bristol brewery Good Chemistry turned to bounceback loans as they built a new 2020 strategy from scratch. Co-owner Bob Cary explains why:
“The main advantage of the bounceback loan was that it was easy to apply for. There was just a pretty straightforward online form, and no hours on hold waiting to speak to someone.”
Good Chemistry used the loan to purchase their own beer canning machine, enabling them to step up the supply of packaged beer at a time when draught beer sales have essentially stopped dead.
“Canning our beer had always been part of our plan for this year,” says Cary, “but the COVID-19 crisis pushed us to accelerate our plans. Lockdown has had the effect of driving people to buy more beer directly from breweries, and we expect this habit to continue.”
In practice, the approval wasn’t as quick as Cary had hoped – an application on 4 May was approved on 15 May – but it enabled them to put a deposit on the machine to secure delivery in July.
Elsewhere, there are reports of car dealers using the loans to acquire stock while others are investing in new websites – especially ones that are equipped to deal with booming online sales.
Laura Taylor, who runs accountancy firm Empowered by Cloud, confirms that it’s not just about buying hardware:
“My clients have mainly been using the loan to buy enhanced marketing support, strategic services or coaching and mentoring.”
Laura Taylor also points out another benefit of this particular type of loan: “It’s low risk as it can be paid back early without incurring additional fees.”
Sarah Small, founder of Leeds-based business management firm aDigitalMe, agrees, and says the bounceback loan offers “reassurance at a very low rate”:
“It means that businesses can continue to exist despite losing income. You obviously have to consider how you will repay it if your business does go under, so think about all your options before jumping on the application, but if it allows you to move forward in uncertain times, then it might be the branch you’re looking for.”
Small isn’t alone in advising caution.
A recent survey of SME owners and operators found that 43% of respondents whose businesses had taken a loan said they didn’t expect to repay them. That’s because they don’t think they’ll be able to or because they’re assuming the Government won’t pursue payment, even though the loans are administered via banks, not direct from Whitehall.
While the terms of the scheme are generous, and the eligibility criteria are remarkably relaxed, you should still treat it as a business loan.
Laura Taylor says:
“It’s not a grant and needs to be paid back. It would be sensible to prepare cashflow forecasts and business projections with this in mind.”
Hopefully, though, investing it wisely to equip your business for the new reality will mean it all but pays for itself.
Is there a specific item of equipment or other investment that would enable you to keep trading under social distancing rules, or to fulfil more orders?
Or will a loan enable you to stay ahead of the pack and remain on course to achieve growth in 2020/21?
If so, it’s certainly worth serious consideration.