What is a Bounce Back Loan?

If the coronavirus pandemic has left your business in financial difficulty, you could be eligible for a Bounce Back Loan.

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A bounce back loan is a new kind of loan from the government that is part of the Bounce Back Loan Scheme (BBLS). It’s designed to help small-and medium-sized UK businesses to access finance more quickly during the COVID-19 pandemic and operates separately from the Coronavirus Business Interruption Loan Scheme.

The good thing about these Bounce Back Loans is that you don’t have to pay any fees or interest on them for a whole year. After that, the interest rate is just 2.5%.

Plus, the government will guarantee 100% of the bounce back loan, including both capital and interest. This means the risk to lenders is reduced. And your credit rating won’t affect your eligibility. But remember that you’re still always fully liable for your bounce back loan debt.

The scheme is currently due to run until 31 March 2021.

How much can you borrow with a Bounce Back Loan?

Businesses can borrow from £2,000, up to 25% of their annual turnover through what’s been named the ‘Bounce Back Loan Scheme’ (BBLS). But this is capped at a maximum of £50,000.

If you’ve already taken out a Bounce Back loan but didn’t take the full amount you were eligible for, then it might be that you can apply for a top up. You can only do this once, though, and you have to use the same lender as you used originally. The countdown on your repayments starting begins when you took out the first part of your bounce back loan, not when you topped it up.

How long is the term for Bounce Back Loans?

Bounce back loans come with a six-year term, which means you get six years to pay yours back. You don’t pay anything for the first year.

You’ll have an option to pay off your bounce back loan sooner, and you won’t be charged early repayment fees to do so. You may find this feature useful when your business picks up again.

You can also apply for a flexible repayment play, which would give you an extension on your bounce back loan term. With this, your bounce back loan term could be a maximum of 10 years.

During the term of your bounce back loan, you’ll be allowed to switch to interest-only repayments up to three times if you want. Each time, you can do this for up to six months.

You can also pause your repayments once, for six months. But, to do this, you’ll need to have already made at least six repayments.

Are all businesses eligible for bounce back loans?

No, sadly not all businesses are eligible for bounce back loans. The main criteria is that your business:

  • Must be UK based 

  • Must have been negatively affected by the pandemic (such as by losing revenue or having cashflow disrupted)

  • Must have been established before 1 March 2020.

You won’t eligible if your business is:

  • A public-sector body

  • A state-funded primary or secondary school

  • A bank, insurer or reinsurer (insurance brokers can apply).

You also won’t be eligible if you’re already claiming under any of the other Coronavirus loan schemes. These include the:

  • Coronavirus Business Interruption Loan Scheme

  • Coronavirus Large Business Interruption Loan Scheme

  • Covid-19 Corporate Financing Facility.

However, you can transfer any loan you’ve already taken out under these schemes into the Bounce Back Loan Scheme. The loan has to be £50,000 or less to do this and it needs to be transferred before 31 March 2021.

Remember also that if your business was a ‘business in difficulty’ on 31 December 2019, there might be extra restrictions on your bounce back loan.

You should also take note that bounce back loans don’t affect your eligibility for other government personal support. So you could still apply for the self-employment income support grants, or universal credit, even if you’ve got a business bounce back loan.

How do I apply for the BBLS? 

There are 29 lenders approved by the BBLS to offer these coronavirus loans. These range from Barclays, Natwest and HSBC to Metro Bank, Bank of Ireland and Bank of Scotland. You can see the full list of lenders here.

You can approach the lenders via their own websites, and fill out the application form, or use a broker. Some lenders might want to book a background-check appointment with them.

The lenders will decide whether to approve your application. If one lender turns you down, you can try other lenders that are taking part.

Is a business Bounce Back Loan secured?

No, a business bounce back loan isn’t secured against your assets which is excellent news for you. As the government is backing the loan, you don’t need to secure it against your home, for example. 

Lenders can’t take recovery action with your home or vehicle, for example, if you don’t repay your business Bounce Back Loan.

Can I use a Bounce Back Loan to pay off existing financial commitments?

Yes, you can use a Bounce Back loan to repay existing finance commitments. 

The loan can be spent on investment or working capital for your business – including bills, running costs and wages.

However, it’s a good idea to check the terms and conditions of your loan carefully before you commit to it.

What's the difference between BBLS and CBILS?

There are two main differences between a Bounce Back Loan and a CBILS loan.

The first is that CBILS loans are meant for larger businesses looking to borrow between £50,000 and £5 million.

The other difference is the application process. CBILS loans require businesses to provide a comprehensive accounting of their finances, such as management accounts, business plan, historic accounts, details of business assets, etc to support their loan application.

Bounce Back Loans, on the other hand, only require self-certification which is conducting by completing a questionnaire, with no requirement to provide much financial data. This allows small businesses, which are typically more affected by the pandemic, to access credit in a matter of days. If you've applied for CBILS loans, you won't be eligible for a Bounce Back Loan. Similarly, if you apply for Bounce Back Loan, you won't be eligible for a CBILS loan.

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