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Business bounce back loans – But be mindful

Enhanced Transcribe:

Hey folks, Dr Ro here. Hope you are well. 

I thought I’d do this very, very quick live today. About three days ago I had a phone call with my bank manager telling about the release of this new bounce back loan for those of you looking at possible methods for just creating some additional support, alleviating a bit of pressure off the business.

I said to him what’s going on at the moment? Can you give me the hot off the press update. I’m aware of the business interruption loans because people have been asking me about that, but what other facilities are available? 

Just so I’m aware, and he said to me, look just to let you know there is something brand-new that has just come out and it’s called a bounce back loan. It’s been set up for small businesses because the interruption loan to some extent is based on your turnover, last three years accounts. Again anything I am saying here, please seek financial advice. This is not intended to be advice, it’s purely a reflective thought, looking at this at the moment. You will need to speak to your accountant or your bank manager to get specifics on this.

But essentially the business is more specific to your business relationship with the bank and how much turnover you had over the last three years. It is also linked to employees that you may or may not have and there’s certain parameters that are involved in whether they’re going to sign that off or not. And the credibility of the business and its longevity and the ability to pay back, etcetera the future. In a nutshell, that is a six-year loan at a low rate. Around about 2%. 

At the moment there’s going to be a change of the rules I think but again, seek advice and follow this up, but there’s talk of the government covering the interest on that for the first six to 12 months and then it’s capital interest payments after that. Again, that is a moving goalpost so I would definitely check that out, and there are figures up to large amounts of money depending on the size of your business available. 

The bounce back loan has just been released, it’s slightly different, it’s more relaxed. It’s for smaller businesses. It’s designed for people that have small businesses and don’t necessarily need to or aren’t able to go for a business interruption loan and that figure is been raised to 50K now. It’s two, three, four, grand up to 50 that you can borrow and that is over a six-year period, 2.5% interest rate charged. There’s nothing to pay for the first 12 months by the capital or interest. Then there is payment after that for the remaining five years.

It’s based on a percentage of the business turnover. I think it’s around 25%. Again, go check this out. If you have a 200 grand a year turnover business, you’ve got the ability to borrow up to 50 K for example. It is essentially self-certified so you’re not having to go down the presentation of three years accounts etcetera. So in that respect, it is generally easier to acquire and that’s why in the last few days many people have started to look at it and it’s a good opportunity if you’re looking for quick money. The money is in your account within 24 hours and no interest to pay for the first year.

Of course, you’ve got to think about whether you can service this once you get to the end of the first year. Here’s the thing, people have asked me a question about what property investors now look like. I’m not a tax adviser, I can’t give you advice. I’m not a bank manager. I have reached out and spoken to a couple of very influential people who know this market well. Essentially the message I’m getting and the message I understood from my bank manager is for a property investor you’ve got to be a little bit careful here because it is really directed at commercial businesses. Not buy to let landlords.

If you run a buy to let business as a limited company my understanding is that wouldn’t officially qualify for this loan. If you had, and again you’ll have to go get guidance on this but the general feeling is that unless you run a AirBnB hotel type business, maybe holiday lets in a limited company as a property investor, that is likely to be classified as a commercial business and would then officially be able to get the bounce back loan.

If somebody fills in a self-certified piece of paperwork online and you’re a property investor with a buy to let portfolio and you happen to put in there yes, there is a commercial business and you get the loan deposit into account the next day, HMRC are setting up a task force and this task force will basically be tasked with the subject of looking into these companies to make sure they are qualifiable companies. The easiest way to do that is to look at sit codes. Sit codes on a Companies House tell you the nature of business. It is pretty clear if it’s a buy to let portfolio business, residential business, doing buy to let small HMOs that’s clear. 

I’m guessing and this is me making an assumption, a task force like that has the ability to go investigate the company and find out actually that it is not a commercial company and as such that loan could potentially be revoked. I think there are going to be challenges and I think that you need to seek advice on this and get your bank manager or someone to give you the thumbs up. Because you don’t want to find yourself in a situation where you get 20, 30, 40 K bounce back loan and then you find out as a buy to let the landlord in a limited company in two months that you don’t qualify.

That means they may not be as intensive investigations, but once they start looking, if you’re signing off on a piece of paperwork to say yes, it’s a commercial business and actually it is not, potentially you’re at risk as director of the company and of course it might be the government or bank come back and say, give us the money back. 

All I’m doing is issuing a warning to say, double check this with someone that is in the know. I’m still looking into it, but that’s my interpretation, my understanding and I’ve kind of checked this with a couple of independent people who are essentially accountants and tax specialists and that’s their view as well. If you are standard buy to let landlord I’d double check on the bounce back. 

I don’t know about buying and selling and trading, that’s something you could probably check up on if that’s your main business. But otherwise, my understanding would be things like holiday lets, hotels, the AirBnB that type of thing would likely qualify as a commercially based business limited company that may get the bounce back loan officially.

That’s all I want to say really at this stage, I think it is a great opportunity for those of you that run several businesses, of which you might have commercially based businesses, it is there as support and gives you a bit of a buffer as well.

I don’t know if it helps or not. The main message here is, go check it out and then it might be that your bank manager can steer you towards one or the other. If you’ve got several businesses, of which one is a buy to let business in a limited company and you’ve got another business as well, it might be that simply you borrow against the other companies. 

Again, that’s something I’d probably do myself in that process.

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