Everything you need to know about Bounce Back Loans
Bounce Back Loans supported many small businesses during the covid pandemic. But where do you stand when it comes to paying them off and how do you go about it? Our guide explains
What is a Bounce Back Loan?
Bounce Back loans were government-backed loans for sole traders and small to medium-sized businesses, launched to help business owners during the covid pandemic when lockdowns prevented many of them from trading. They were available from major banks including Barclays, TSB and NatWest, but the scheme is now closed to new applications. The scheme helped small and medium-sized businesses borrow between £2,000 and up to 25% of their turnover. The maximum loan available was £50,000.
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 are liable for the 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.
Am I able to take out a Bounce Back Loan?
No. The provision of Bounce Back Loans ended on April 1, 2021 and even Bounce Back Loan top-ups are no longer available. If you run a business and are looking to borrow, MoneySuperMarket can compare medium to long-term business loans.
How long do Bounce Back Loans last?
Bounce Back Loans last for six years, but you can repay early without facing an early repayment charge.
No repayments are due during the first 12 months and before you make your first payment you have the option of extending the term of your loan to 10 years. You can also move to interest-only repayments for six months (you can do this up to three times) or pause repayments for six months (you can do this once).
What is the interest rate on a Bounce Back Loan?
No loan repayments, interest or fees are payable in the first year of a six-year Bounce Back Loan. You will then be charged a 2.5% fixed rate of annual interest – considerably cheaper than most personal loans.
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 to try to cut the debt.
By way of example:
Annual interest rate 2.5% (fixed)
Term 72 months (loan repayments start at month 13)
Loan Amount £25,000
Highest monthly repayment £468.75
Total amount repayable £26,588.54
A standard Bounce Back Loan has a 2.5% fixed interest rate over a six-year term, with no repayments for the first 12 months.
Your capital repayment amount is the same each month, but you pay less interest each month as you repay the loan. This means your first new monthly repayment is the highest and repayments will then reduce each month until the loan ends.
You can make overpayments whenever you like, or repay the loan in full at any time, with no early repayment charges.
Will my Bounce Back Loan ever be written off?
Your Bounce Back Loan will only be written off if your limited company becomes insolvent and enters into a formal liquidation process. The company's debts will then be repaid from the sale of assets and any remaining debt will be written off.
The situation is more complicated if you are a sole trader because legally there is no distinction between the business’s money and your own, but as a Government-backed unsecured loan, your home is not at risk.
Is there an early repayment charge on a Bounce Back Loan?
Bounce Back Loans don’t have any early repayment charges so you can repay what you owe at the earliest opportunity without financial penalty.
Am I able to make flexible payments?
You can have more flexibility when it comes to making repayments if you opt for the Pay As Your Grow scheme, although this will make the Bounce Back Loan more expensive in the long term.
There are three Pay As You Grow options to consider
Request an extension of the loan term to 10 years from six years, at the same fixed annual interest rate of 2.5%
Reduce your monthly repayments for six months by paying interest only. This option is available up to three times during the term of your Bounce Back Loan
Take a repayment holiday for up to six months. This option is available once during the term of the Bounce Back Loan
If you want to use Pay As You Grow, you must apply within 12 months of taking the Bounce Back Loan. You can use the options independently or in conjunction with one another. The first year of a Bounce Back Loan is interest-free, so lenders will contact you three months before you start making repayments to advise you on your options for Pay As You Grow.
Pay As You Grow also doesn’t affect a borrower’s credit rating, but it may affect your affordability if you’re looking to borrow in the future.
Does the loan have any tax implications on my business?
Bounce Back Loans are not taxable when you receive them but they are meant to be used as working capital by the business. Therefore, they might have tax implications if the cash enables the company to pay dividends to shareholders. It will depend on a firm’s individual circumstances and businesses should check with their tax adviser to avoid doubt.
What happens if I can’t repay the loan?
Because a Bounce Back Loan is unsecured debt, you won’t lose any assets such as your home or car should you be unable to meet repayments. It also shouldn’t affect your credit score because credit checks are not mandatory for the loan scheme.
However, lenders will chase you for what you owe in the same way they would for any other unsecured loan. This could involve dealing with debt collection agencies and potential court action.
How do Bounce Back Loan repayments work if I am self-employed?
Whether you’re a business owner or self-employed – either as a sole trader or partnership – bounce back repayments work in largely the same way. You pay no interest for the first 12 months and then start repaying the debt at 2.5% for the next five years (or nine if you have chosen to extend it) or until the money is paid off.
Can I consolidate a Bounce Back Loan with another loan?
Given the Bounce Back Loan is interest-free for 12 months and then at the low borrowing rate of 2.5%, it may be beneficial to use it to pay down existing debt that is more expensive and improve the cashflow situation of your company.
Compare loans with MoneySuperMarket
If you’re looking for further finance for your business, MoneySuperMarket can help. We can search the market for business loans to suit your needs.
You’ll be able to compare loans and receive quotes with our partner Funding Xchange. You can get the process started by answering a few questions about your business, what you plan to use the funds for and information on your business revenue. We’ll then be able to give you a tailored list of quotes for you to consider.