Schoolgate’s Guide to Bounce Back Loans

What are Bounce Back Loans?

The Bounce Back Loans Scheme (BBLS) is an initiative from the British Government which aims to help businesses navigate the short-term effects of the coronavirus pandemic. The scheme was announced on 27 April 2020 by the Chancellor and it helps businesses by offering loans of up to £50,000 which can be accessed within days of an application.

Loans vary in size depending on the turnover of the firm. Loans start at £2,000 and the maximum amount that a business can qualify for is 25% of their turnover. The loans are capped at £50,000, which is the maximum loan available.

Loans are repaid using the “Pay as You Grow” repayment scheme.

What is “Pay as You Grow”?

The repayment system for a Bounce back Loan is called “Pay as You Grow”. It aims to operate as a flexible repayment system so that companies can repay in the way that best suits them.

For instance, if monthly repayments become too cumbersome, businesses can choose to extend the length of the loan from 6 years to 10 years which would cut individual monthly repayments in half. Businesses can also ask for interest-only periods for up to 6 months and payment holidays.

There are no repayments due during the first 12 months of the loan term, giving businesses the space they need to get through this difficult period, without needing to worry about repaying these loans in the coming months. After 12 months, businesses will repay back the loan at an affordable flat rate of 2.5%. All loans are backed with a 100% guarantee by the government. This gives lenders security as the government will repay the loan if a borrower defaults.

Additionally, during the first 12 months, businesses are not expected to pay fees or interest on the loan as these costs are covered by the government. This is called the “Business Interruption Payment”.

Who is Eligible?

Almost all viable UK-based businesses will be eligible to apply for a loan under the scheme.

You can apply for a loan if your business:

  • Is based in the UK
  • Was established before 1 March 2020
  • Is based in the UK

Has been adversely affected by coronavirus (COVID-19)

If your business was classed as a ‘business in difficulty’ on 31 December 2019, you will need to confirm that you are complying with additional State Aid restrictions. More details are available here and here.

Who is ineligible?

The following businesses are NOT eligible to apply:

  • Banks, insurers and reinsurers (but not insurance brokers)
  • Public-sector bodies
  • Further-education establishments, if they are grant-funded
  • State-funded primary and secondary schools
  • Businesses already claiming funding under the Coronavirus Business Interruption Loan Scheme (CBILS)

How do I access it?

Finance facilities supported by the Bounce Back Loan Scheme are available through accredited lenders. Individual lending decisions are at the discretion of these accredited lenders. Details of accredited lenders for the Bounce Back Loan Scheme can be found here.

To apply for the scheme, businesses need to complete a short, simple, online application form. In some cases, borrowers may need to include their 2018-19 HMRC self-assessment tax return alongside the form to verify their status as a business.

Under the scheme, there is no need for lenders to ask for complicated cash-flow forecasts, and difficult questions about the future – meaning that these applications can be submitted and processed rapidly.

Given there is likely to be a big demand for these loans, businesses should:

Consider applying via the lender’s website in the first instance. Telephone lines are likely to be busy and branches may have limited capacity to handle enquires due to social distancing. The application form is made to be completed online, so businesses should try to do so in the first instance.

Businesses interested in securing finance should discuss options with lenders. Additional debt will not be the right answer for all businesses, and it is important that businesses consider carefully before applying for a loan. Businesses will remain responsible for repaying any facility they may take out.

We recognise the vital role that non-banks and challenger banks play in the provision of credit to SMEs. We are grateful for the way the sector has responded to the current crisis, and we remain committed to promoting competition and widening the funding options available to UK businesses.

The Government does not provide funding to lenders who are participating in CBILS, CLBILS and BBLS; lenders must source their own funding, as they do for commercial business lending.

We continue to work with non-bank lenders to support their participation in the loan schemes wherever possible.

When is it available?

The scheme launched on Monday 4th May 2020 and is now open to applications until 31 January 2021.

If you already have a Bounce Back Loan but borrowed less than you were entitled to, from 10 November you can top up your existing loan to your maximum amount. You must request the top-up by 31 January 2021.
Further details on a Bounce Back Loan application can be found here.

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