Extension of Coronavirus Business Interruption Loan Scheme

Business Interruption Loan Scheme

October 09, 2020

With the extension of the coronavirus business interruption loan scheme there has indeed been a sigh of relief. This welcome note was struck on the 24th of September 2020 when the news of the extension was released to continue till the 30th of November 2020. This has been a very transient year as far as business finances have gone, things have been so dynamic that accounting for startups, will find their work quite cut out for them. £53 billion has gone towards the loans that the government has backed from March indicating that the government hasn’t shirked from sending where it seems to find a cause.

There are fears that things will go south the moment help is withdrawn and so after going this far the government doesn’t seem too happy at the idea of backing down at the eleventh hour. However, how effective has the business interruption loan been.

Firstly, what is it?

This scheme was set up to aid small as well as medium-sized scale businesses for a better access towards loans and other means of finance up to around £5 million. Of the borrowed amount to encourage the lenders to lend, the government has actually made a guarantee of 80% and will pay the interest and the fees for the first year while of course the previously assured finance. Of course, there are criteria for application like the fact that the firm needs to be UK based as well as having a turnover that is annually of at least £45 million. Furthermore, the business person needs to indicate that Covid has brought things down for the business and had it not been for the pandemic, business would be flourishing.

The figures from March

The government was able to start with the loan in March and so this stopped things from taking too sharp a decline as there as still capital afloat in the market despite the trying months ahead. It has been estimated that 60,000 or more of firms have already used the scheme and between them have taken close to 14 billion with the loan amount being closer to around 5 million. Commercial banks have been open minded about the loan as the government backs about 80% of the monies in the unfortunate scenario of a defaulter. It has been expected that around 40% of these loans would result in a default.

How the loan can help employers

Business accounting practices need to be top notch at such trying times. The reason these loans have been considered to be so appealing is that for the first year there is no interest that is payable. Being a bit different from the usual the government has been under the scanner for the same but the extension is a sure indicator of the success that the scheme has seen. From 6 years length of the loan there has been a change made here too as it has now increased to 10 years. Being a mostly bank based scheme, you need to find a bank that will act as your lender. Working capital was considered to be an avenue that would most suffer due to the lockdowns and break in the steady supply chain. Hence, to minimize (as to avoid is impossible) the business repercussions, this was seen as a means of making capital available and that too with a government guarantee. Interestingly now with the extension the loan amount that can be availed too has extended from £50 million to now £200 million. This indicates clearly that the government does want to do all in its power to help ease the stress Covid 19 has put on the economy.