Does Bounce Back Loan Count As State Aid?

Many business owners are unsure about “Does Bounce Back Loan count as state aid?” This can be concerning as it can impact record-keeping, reporting requirements, and even eligibility for future aid.

The answer is yes, Bounce Back Loans are considered a form of State Aid. This is because they offer significant advantages compared to typical commercial loans, such as a 100% government guarantee, a low-interest rate, and no personal guarantees.

For a comprehensive understanding of how Bounce back loans impact your business and its implications, check out our detailed guide. If you require professional assistance in managing financial matters or insolvency concerns, Vanguard Insolvency is here to help. Scroll down to get details. 

What Do We Mean By State Aid?

State aid mainly refers to financial assistance provided by a government to businesses, organizations, or individuals. 

This would be like e a government giving a helping hand to specific businesses or industries. This financial support, known as State Aid, is intended to achieve various goals like boosting a struggling region, encouraging innovation, or mitigating the impact of an economic crisis.

Since this aid benefits some businesses more than others, it can potentially create an unfair playing field, tilting the scales of competition in the market. To prevent this, especially within the European Union (EU), strict regulations are in place to ensure fair competition and prevent businesses from gaining an undue advantage through State Aid.

What Are The State Aid Restrictions?

State aid restrictions act like guardrails, ensuring fair competition in the market. They prevent governments from giving certain businesses an unfair advantage over others, primarily within the European Union (EU).

Here’s a breakdown of the key restrictions:

General Prohibition:

The EU Treaty generally prohibits any state aid that distorts or threatens to distort competition by favouring specific undertakings or the production of certain goods and affects trade between member states. This means governments cannot simply hand out financial support without considering the potential impact on competition.

However, there are exceptions to this general prohibition. The EU allows certain types of state aid considered beneficial and unlikely to create significant distortions, such as aid for:

  • Research and development: Supporting innovation and technological advancements.
  • Environmental protection: Encouraging businesses to adopt sustainable practices.
  • Regional development: Boosting economic activity in less developed areas.

Even with exceptions, most forms of state aid still require notification to the European Commission. The commission then assesses the aid’s compatibility with EU competition rules, considering factors like the aid amount, the purpose, and potential competition distortions.

De Minimis Aid:

For small amounts of state aid, a simplified approach called de minimis aid exists. This allows governments to grant aid below a certain threshold (currently €200,000 over three fiscal years) without notification, as it is considered unlikely to significantly distort competition.

Additional Restrictions:

Beyond these general points, various sector-specific regulations may apply depending on the industry receiving the aid. For instance, specific limitations might exist for sectors like agriculture, fisheries, and transport.

Overall, state aid restrictions aim to balance the need for government intervention in certain situations with the principles of fair competition and a level playing field for all businesses within the EU market.

Does Bounce Back Loan (BBLS) Count As State Aid?

Yes, the Bounce Back Loan (BBLS) scheme is considered a form of State Aid if your company is in difficulty.   

The Bounce Back Loan Scheme (BBLS) was introduced by the UK government in response to the COVID-19 pandemic. It provides financial support to small and medium-sized businesses affected by the economic downturn. 

Under the scheme, eligible businesses can borrow between £2,000 and £50,000, with the government guaranteeing 100% of the loan. This guarantee effectively means that the government is providing financial assistance to these businesses, which falls under the definition of state aid.

As state aid, the BBLS is subject to regulations aimed at ensuring fair competition within the European Union. However, during the pandemic, the European Commission temporarily relaxed state aid rules to allow member states to provide substantial support to businesses struggling due to the crisis. 

Despite this relaxation, the BBLS still falls under the category of state aid, as it involves government intervention to support specific economic sectors.

Your Company is In Difficulty- How Do You Define? 

“Your company is in difficulty” is a term used to describe a situation where a business is facing financial challenges that threaten its viability. This could be due to various factors such as declining revenue, cash flow problems, mounting debt, or an inability to meet financial obligations. 

In the context of state aid regulations, the European Commission provides guidelines for defining when a company is in difficulty.

According to these guidelines, a company is considered to be in difficulty if it meets one or more of the following criteria:

1. Insolvency: The company is unable to pay its debts as they fall due, or it is in bankruptcy proceedings.

2. Financial Distress: The company’s financial ratios, such as liquidity, solvency, and profitability, indicate significant deterioration compared to industry norms or historical performance.

3. Receiving Rescue Aid: The company has received rescue aid in the past, which has not yet been repaid, or has received restructuring aid and is still under a restructuring plan.

4. Not Meeting Creditworthiness Criteria: The company does not meet the creditworthiness criteria of financial institutions, making it unable to obtain financing on market terms.

Identifying whether a company is in difficulty is crucial for determining its eligibility for certain types of financial assistance, such as state aid or restructuring support. 

It allows regulatory authorities to target assistance to those businesses most in need, while also safeguarding against misuse of public funds.

Does interest in the Bounce Back Loan count as state aid?

No, the interest paid on a Bounce Back Loan (BBLS) does not count as State Aid. This is because the de minimis aid threshold, which sets the limit for state aid that doesn’t require extensive reporting, only considers the principal amount of the loan, not the interest accrued.

Therefore, as long as the total loan amount you receive stays within the de minimis limit (currently £177,800 over three fiscal years), the interest payments on the BBLS won’t contribute to your state aid calculations or reporting requirements.

Are there any limitations on receiving Bounce Back Loans as State Aid?

While receiving a Bounce Back Loan as State Aid offers support, it comes with a few restrictions:

  • De Minimis Limit: The total state aid you receive, including the BBLS and other aid, cannot surpass £177,800 over three years. Exceeding this limit might require additional reporting and potentially impact your eligibility for future state aid.
  • Sector-Specific Rules: Businesses in certain sectors like agriculture, fisheries, and transport might face stricter limitations or even be excluded from receiving the full BBLS benefits due to specific EU regulations.
  • “Company in Difficulty” Status: If your company was considered “in difficulty” on December 31, 2019 (e.g., undergoing restructuring, receiving rescue aid), the BBLS itself counts towards your de minimis limit, potentially exceeding it quicker.
  • Export Activity Restrictions: Businesses cannot use the BBLS for activities solely related to establishing or operating a distribution channel for export or other current export-linked expenditures.
  • Record-Keeping and Reporting: As a recipient of State Aid, you’ll need to maintain specific records and potentially submit reports to the government, demonstrating how the loan helped your business overcome COVID-19 challenges and ensuring compliance with de minimis aid limits.

The things to note are that these are just some key limitations. Consulting a professional advisor is essential for personalized guidance on your specific situation and navigating the complexities of receiving a Bounce Back Loan as State Aid.

Find more information about State Aid and Bounce Back Loans With Vanguard Insolvency! 

If you’re facing uncertainty about State Aid and Bounce Back Loans, Vanguard Insolvency can help. They specialize in aiding businesses in difficulty, offering tailored solutions and expert advice. State Aid regulations can be confusing, but Vanguard Insolvency provides clarity and assistance. 

Contact them at 0121 769 1915 for personalized guidance. Their experienced team is ready to answer your questions and navigate the complexities of State Aid and Bounce Back Loans with you. Don’t hesitate to reach out for the support you need during this challenging time.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.