The Bounce Back Loan Scheme

This has been launched due to fears that small businesses can’t access coronavirus funding quickly enough.

The info below is the latest we have and you need to remember that this is a developing situation

Bounce back loans in a nutshell

Bounce back loans are separate from the Coronavirus Business Interruption Loan Scheme, which is for larger amounts, but not 100% state-guaranteed. If you’ve already applied to that you can apply to have it switched to this scheme if you prefer. 

Here’s what you need to know about bounce back loans:

The lender must be a UK limited company or partnership, or tax resident in the UK,that was carrying on business on 1 March 2020

  • You can borrow between £2,000 and £50,000. Though the amount is capped at the lower of £50,000 and 25% of your total turnover (usually for calendar year 2019, or new businesses can estimate).
  • No interest will be charged and no repayments will need to be made in the first 12 months.  
  • After 12 months, all banks will charge a fixed 2.5% annual interest. 
  • You can repay the loan early without penalty. Or with some banks you can part-repay or overpay.      
  • The loans are set up to last for six years. So that’s a year interest-free and the rest at 2.5%..
  • The loans are unsecured. . Here you don’t give security (the Government does) so it’s far more difficult for them to take your assets if you can’t repay.
  • Your business must have been established before 1 March 2020. It must also still be trading as a going concern (temporary cessation due to coronavirus doesn’t matter) at the point of application – and the reason for any issues must be due to coronavirus.
  • Credit ratings (business or personal) won’t impact your eligibility – so most should be able to get these loans. You don’t need to prove the viability of your business and the application process is relatively straightforward. 
  • The loan will likely go on your business credit report, but not on your personal one.
  • At least eight banks are offering them. . 
  • You need a business to set these up but don’t need a business bank account. At least some of the banks offering these loans don’t require you to have a business account with them. 
  • Bounce back loans DON’T affect your eligibility for other Government personal support. You can still apply for a bounce back loan and get the self-employment income support grants, and you may still be eligible for universal credit.
  • The borrower must self-declare they meet the eligibility criteria and make certain confirmations.
  • Bounce back loans could be used to repay existing finance subject to the terms from the specific lender.

Nothing in the rules stops you using bounce back to support your income

“Now on to the technical. There is nothing in the bounce back rules stopping you from using the loan to support your income (though it’s worth checking your own tax situation and corporate structure in case anything there limits it). The Treasury.has stated :
“There are no strict rules on what these loans may be spent on, as long as it is under the banner of working capital or investment – ie, things to keep the lights on, like debt service, bills, running costs and crucially wages”.

Where to get a bounce back loan from

To apply for a bounce back loan, you’ll need to contact a bank directly and fill in a short online application. All banks charge the same 2.5% annual interest (after the first 12 months at 0%).

When filling in your application, you’ll need details of your annual turnover, company number and account number, the amount you want to borrow, a copy of your tax return and also to confirm that your business has been

How the loan repayment works

There is no interest or repayments in the first year. After that you are scheduled to make 60 repayments of the capital (the amount you borrowed). However, this doesn’t work like a normal personal loan, in that you have fixed payments. In fact, the way it works is more like an overdraft facility.

Each month, you repay 1/60th of the capital, plus the interest that has accumulated that month. That means you repay more in the first repayment month than, say, in the 30th, as the amount you owe is decreasing. 

– For example, if you borrowed £25,000: 

  • Each month your capital repayment is £417.
  • In your first repayment month you’d repay a total of £469, made up of £417 capital and £52 interest.
  • By month 25, you’d pay £458 as the interest is lower.
  • Pay the loan off on the agreed term over five years, and you’d pay back a total of £26,590 (ie, the capital you borrowed plus £1,590 interest). 

But if you overpay early, even in part, the amount you owe reduces and so does the interest.

.Lenders are not permitted to require personal guarantees for the Bounce Back Loan Scheme.