What Turnover Did You Need For A Bounce Back Loan?

There were two ways of working out what turnover you needed for a Bounce Back Loan. There was actual turnover and estimated turnover. This formed the basis of the amount a business could borrow.

What is interesting about this is the difference in how some directors will have been assessed when they put forward their business turnover figure in the application for a loan from the bounce back loan support scheme.

What Was The Bounce Back Loan Support Scheme?

The Covid 19 Pandemic struck in late 2019 and during the second quarter of 2020, the government launched the Bounce Back Loan Support Scheme.

When it came to the scheme there were various bounce back loan scheme criteria such as:

• The bounce back loan had to be used for the economic benefit of the business.
• You had to be trading by 1 March 2020.
• Your business had to have been affected by the Pandemic.
• You could not borrow more than 25% of turnover up to a maximum loan of £50,000.

The Bounce Back Loan Support Scheme was well promoted for businesses in need to take advantage of it.

Actual Turnover Needed For A Bounce Back Loan

Directors who had been trading prior to 1 January 2019 had to state their turnover for the calendar year 2019. In other words, they had to use actual figures in respect of the turnover they had achieved.

A company which had been trading as at 1 January 2019 will have been able to establish its actual turnover for the 12 months ending 31 December 2019 because all companies have a duty under Section 386 of the Companies Act 2006 to be keeping company and accounting records. 

Businesses do not always write up their books each day and end of year accounts may be written up several months after the year end. Nevertheless, for many of those businesses who were applying for a bounce back loan of more than £21,250, they will have been registered for VAT and therefore would likely have been able to source details of their turnover from their VAT returns submitted to HMRC. 

Estimated Turnover For A Bounce Back Loan

On the other hand, if the business had not been trading prior to 1 January 2019 there would no 2019 calendar year of actual turnover figures to refer.

Plainly there would have been an issue where a business had commenced trading before 1 March 2020 but at the point it applied for the loan, what period of turnover would apply? 

It seems that most (if not all) lenders who were accredited to market the scheme looked at periods of 12 months. So if a business had not been trading for 12 months when the bounce back loan was applied for, then it was allowed to estimate its turnover for a 12 month period. Usually, it appears if you had not been trading by 1 January 2019 you could estimate turnover. 

This has created two distinct groups of applicants of bounce back loans. Those who obtained a loan based on actual historic turnover figures and those who could estimate their turnover.

This will have created different issues to be considered where bounce back loan investigations by the Insolvency Service are concerned when a bounce back loan had been improperly obtained due to its turnover.

It seems likely that businesses who estimated their turnover will have more room to argue their position than those who provided actual figures that were wrong. The upshot of this is that a business that could estimate its turnover for obtaining a loan might perhaps conceivably be less susceptible to prosecution because an estimate by its nature is speculative and lacks certainty. 

When Estimated Turnover Might Go Wrong In Applying For A Bounce Back Loan

The point when estimated turnover might go wrong in applying for a bounce-back loan is when it seems incredible. An example of this might be a business that has little or no turnover, putting forward unrealistically and hopelessly optimistic estimates. 

A business that had been trading say for three months and had a turnover over £25,000 could perhaps realistically say its estimated turnover for twelve months would be £100,000. This of course does not take into account seasonal fluctuations. So if a turkey farmer had a turnover of £25,000 in the three months to 31 December 2019 and say two thirds of its annual turnover would be in that financial quarter, the farmer might have struggled to advance a case that their turnover for the following nine months would have been £75,000 given Christmas only happens once a year. It all depends on the facts of the case.

British Business Bank Turnover Requirements

The British Business Bank published the requirement that a loan was based on 25% of turnover. It is not clear if the calculation was then left to the application form of the relevant lender or if other rules were published at the time on this point. It seems likely it was left to each lender to set out the turnover questions. The application forms for all lenders do not appear identical on the turnover question.

Has Your Bounce Back Loan Been Queried Based On Turnover In The Application?

Suppose your bounce back loan application has been queried (such as for director disqualification proceedings) based on turnover. In that case, it might be useful to seek the following documents to enable you to assess or take further advice on your case:

• A copy of the signed application form you completed for the lender to examine what you were asked for in respect of business turnover.
• A copy of the lender’s terms and conditions to see what this said about the turnover requirements and how this was defined for a bounce back loan application.