Good morning readers. I trust that you had an enjoyable day yesterday celebrating the 75th anniversary of VE Day.
As we are facing challenging times, I have been spending a lot of time contemplating and reflecting on the sacrifices made by so many between 1939 and 1945. Compared to the sacrifices we are being asked to make today, these sacrifices were far greater.
With the above in mind, I’ve noticed a mood in the general public has changed in the last few weeks; from fearful and scared, to morphing into discontentment. The news that Boris will be giving an announcement on Sunday evening is welcome, however it seems likely we shall have an announcement regarding what is expected to be some sort of ease out of lockdown, however small.
Readers, please let me know your experiences and whether you have noticed more people openly breaking lockdown…? I’d be interested to see your comments.
A big topic for the past week has been the government Bounce Back loan, how to access it and how to use it. As I have been discussing this with several investors, I thought it would be helpful to put together a brief article on the topic.
The Bounce Back loan was announced on 27th April and applications opened last Monday. As well as helping cover costs at a time when revenue may be down, the loan is aimed at helping to stimulate growth as we adjust to a new normal.
Here are the main points:
- Loans range from £2,000 up to 25% of a business’ turnover or £50,000, whichever is lower
- The loan term is six years and set at a fixed interest rate of 2.5% per year, however the government will cover interest during the first year
- The scheme does not require any personal guarantees as it is fully guaranteed by the Government and no fees are due
- There are no repayments due within the first 12 months and early repayment is possible with no additional cost
To be eligible, businesses must meet the following criteria:
- Confirm it is UK based in its business activity and was established by 1 March 2020
- Confirm it has been negatively affected by COVID-19
- Confirm it is not using a government backed COVID-19 loan scheme
- Confirm it is not in bankruptcy, liquidation, or debt restructuring
The application process is extremely easy and generally the first place to start is by speaking with your bank; however not all banks are currently offering the scheme. HSBC is, at the moment, the only bank providing the option to non-customers.
How about property investors and a Bounce Back loan?
So, what does this mean for property investors? Initially, it means that UK landlords should be able to cover any rent payment holiday requests from tenants and therefore these loans should help prevent a nationwide, complete crash of the rental market should the COVID-19 crisis continue longer than expected.
Here is a helpful live article that provides the full details about how to apply and who is lending. If you have multiple companies, it currently looks like each company can apply for their own loan. It is not yet clear however, how rental payments count towards turnover.
It also helps provide a realistic bridge where any additional costs may have been incurred due to things such as a delay in refurb works or the sale of a property (such as mortgage and insurance payments). So in my opinion, these bounce back loans have allowed easy liquidity into the economy and should prove effective in the short term.
Whether this strategy has a medium or long-term success will depend on how effectively and quickly the British economy can recover against the large hits against so many major industries, and inversely how many businesses declare insolvency when the government subsidies such as the furlough scheme, come to end. Only then, and when community transmission comes to an end in the UK, can we start to appreciate the actual economic effect of this period.
Whilst this is very welcome and positive news, it is wise to remember that payments will be required after the 12 month period and will come in at a chunky £937.50 per calendar month if you take the full £50k! So my advice would be that if you do take out the loan make sure you have made financial projections from month 13 to cover these loan repayments.
I can only give my opinion, which does not constitute financial advice and you should take your own financial advice as your circumstances may dictate a different approach. So my opinion is it is probably a good idea for each investor to apply for the Bounce Back loan as even if it ends up not being used, you can repay it in full with no additional costs or penalties. It would, at the very least, provide helpful working capital should any opportunities present themselves!
I would advise that you spend the loan with caution however and be aware the loan rules stipulate the loan should be used for the purposes of the business only and not other businesses or personal interests. We do not know if any further details regarding how the loan has been spent will be required and it is certainly worth keeping an eye on this over the next few months.
I hope you found this brief update helpful and I will be in contact over the next few days as the Government announces the next phase of measures. In the meantime, here is the link to download my eBook regarding rent payment holidays that may landlords have found to be essential!