Back in April, the government announced the launch of a new fast-track loan scheme to support Britain’s small businesses during the coronavirus crisis.
The Bounce Back Loan scheme is one of a raft of measures to help small and local industry, described by Business Secretary, Alok Sharma as being ‘vital for thriving communities, the creation of jobs and securing economic growth’.
Here’s our no-nonsense guide to the new loan scheme.
What is a Bounce Back Loan?
A government-backed loan for sole traders and small to medium-sized businesses available from major banks including Barclays, TSB and NatWest.
Like personal loans, Bounce Back Loans are unsecured which means assets such as your property and vehicle are not put at risk.
Instead, the government provides security by guaranteeing 100% of the amount you borrow.
However, it is important to realise that you will be liable for the entire debt. If your business cannot repay the loan, the government guarantee will only be activated once the lender has chased you for what is owed.
Find out more at the government’s website.
When did they launch?
Bounce Back Loans opened for applications on 4 May, having been announced by the Chancellor, Rishi Sunak on 27 April.
The scheme is set to close on 24 November, although the government may choose to extend it.
Which businesses are eligible to apply?
Sole traders and small to medium-sized businesses that are based in the UK, solvent, were set up before 1 March 2020 – and have been adversely affected by coronavirus – are eligible.
Any type of business can apply, including hairdressers, florists, accountants, online retailers and coffee shops.
However, banks, insurers, public sector bodies and state-funded schools will not be eligible.
What’s constitutes a small to medium-sized business?
There are no strict definitions but a maximum annual turnover of £200,000 is a good benchmark on the basis you can apply to borrow 25% of your annual turnover up to a maximum of £50,000.
What if your business doesn’t fall into this category?
Other government help is available. Try the Coronavirus Business Interruption Loan Scheme or Coronavirus Large Business Interruption Loan Scheme. Our guide has more details.
What interest rate will I pay?
The repayment term for a Bounce Back Loan is six years – the first year of which no loan repayments, interest or fees are payable.
For the remaining five years, you will be charged a 2.5% fixed rate of annual interest – considerably cheaper than a personal loan.
You can also repay a Bounce Back loan early without penalty and in many cases – such as the TSB Bounce Back Loan and Santander Bounce Back Loan – make smaller monthly overpayments.
Can I apply if I’m already using another scheme?
You will not be eligible for a Bounce Back Loan if you’re already claiming under either of the Coronavirus Business Interruption Loan Schemes, or COVID-19 Corporate Financing Facility.
The exception is if you are using the cash from the Bounce Back Loan to pay off this debt.
Where can I get a Bounce Back Loan?
There are currently 18 banks offering Bounce Back Loans, including TSB, NatWest, Starling and Yorkshire Bank.
All participating banks are accepting loan applications from existing business account customers and those using a personal bank account for their business.
If you are using a personal current account for your business, some lenders such as Bank of Scotland and Barclays require you to open a business account first.
A handful of banks such as NatWest and Ulster Banks, are accepting applications from brand new customers who open a business account first.
What are the pros of a Bounce Back Loan?
- Fast access to cash to help your business
- No repayments, interest or fees for the first 12 months
- Low rate of annual interest at 2.5%
- Fixed rate of interest – so repayments will stay the same for the term of the loan helping you to budget
- Loan is unsecured
- Ability to overpay and pay back early with no charges
What are the cons of a Bounce Back Loan?
- Debt will still need to be repaid
- Borrowing capped at £50,000
- Cannot access any other coronavirus funding
What can I use the money for?
So long as it’s for the economic benefit to the business and not for your own personal use, there are no strict guidelines.
For example, you could use the cash to pay wages or bills, buy new stock or invest in marketing.
You may be able to use the loan to pay off existing business debt such as overdrafts. Check with the individual lender.
How do I apply for a Bounce Back Loan?
- Gather the relevant information such as your annual turnover, bank or personal business account number and latest tax return
- Head to the lender’s website and fill in the short online application form. You’ll need to self-declare that you are eligible and that your business has been adversely affected by coronavirus
- Your application is then processed and subject to standard customer fraud, anti-money laundering checks
- If you are accepted, the cash should be paid into your business bank account quickly – plan for three days, although it could be as little as 24 hours
What if I’m turned down?
If your application is rejected, you are free to apply to another Bounce Back Loan provider. However, the lender may decide to offer you another type of finance.
Can I apply for a Bounce Back Loan through MoneySuperMarket?
We do not currently support Bounce Back Loan applications – but we are here to help.