Business bounce back loans are a loan scheme announced by the government to help businesses affected by coronavirus. They are easy to apply for and you can receive the money quickly into a business bank account– possibly within a day or two of the loan being agreed upon.
The minimum you can get is £2,000, and the maximum is £50,000 or 25% of turnover (sales income).
The scheme is open to applications until 31 March 2021 this has been extended from 30 January 2021.
If you already have a bounce back loan but borrowed less than you could, you can top up your loan to the maximum amount. You now have until 31 March 2021 to do this.
The loans are only to be used for expenditure on trading costs or to repay preexisting business finance.
The government guarantees 100% of the loan
Often with business loans, you need to use something you own, such as your house, as security, which meant if you couldn’t repay the loan then you could lose your home.
However, this is not the case with bounce back loans. If for some reason in the future there’s no way you can repay the loan, the government will step in and repay the loan to your lender.
Who can get a loan?
Almost all self-employed people and companies can get a bounce back loan. You need to be:
- based in the UK
- established in business before 1 March 2020
- adversely impacted by the coronavirus
How much will it cost me?
No fees or interest are charged in the first 12 months.
After 12 months, the interest rate will be fixed at 2.5% a year, which is tax deductible interest.
You’ll start to make repayments after the first year, so you’re paying it back over 5 years. If you get a £20,000 loan, you’ll pay £376 a month for those 5 years. The total interest of £2,560.
However, you can repay the loan at any time before the 5 years are up and no early repayment fees will be charged.
How long is the loan for?
The total loan length is 6 years. You don’t pay anything back at all until 1 year after you receive the loan.
3 months before your first repayment is due, your lender will contact you about further options to:
- extend the term of your loan to 10 years, doubling the length of the loan and halving your repayments
- move to interest-only repayments for a period of 6 months (you can use this option up to 3 times)
- pause your repayments for a period of 6 months, meaning all businesses can choose to make no payment for the first 18 months from taking out the loan (this was a new feature added in February, it was previously announced you would have to make 6 months of repayments before you could have 6 months repayments pause)
How to apply?
There are 28 lenders making bounce back loans, many of them are the high street banks. The simplest way is to apply to whichever bank you have your business bank account with. As they can see your business bank account history, they will need you to supply less information. You may need to open a business account to get the loan if you are currently trading using a personal account.
You can also apply to the bank you hold your personal account with, or indeed a bank you don’t have an account with. However, you’ll need to open an account with that bank when you apply for the loan.
If for any reason you are refused a loan you can apply for a loan with another lender. The loans are not linked to your credit score.
What do I need to watch out for?
If you are a director/shareholder in a limited company and withdraw the funds from a bounce back loan for personal expenditure. It can have adverse tax and insolvency implications if, it results in an overdrawn loan account with the company. You should talk to your accountant prior to taking a loan and withdrawing the funds to understand these implications.
Whilst the loan doesn’t affect your personal credit file it will affect your business credit file. This can then affect your ability to get new funding including a personal mortgage. If you are planning to make a mortgage application you should talk with your mortgage broker prior to taking a loan.
Remember it is a loan. You will need to repay this loan and should consider your ability to do so. Just because it has a government-backed guarantee, the guarantee will only be triggered on a personal bankruptcy or company liquidation. Until that happens the loan will need to be repaid.