With the UK in the midst of a global pandemic and the worst recession in centuries, it’s important that businesses assess the financial assistance being made available by the government.
Further lockdowns at the end of 2020 have ensured that important government schemes are being extended into the New Year. One of the schemes recently extended is the Bounce Back Loan, an accelerated loan offered to small businesses adversely affected by COVID-19, which can now be claimed up until 31 January 2020.
In light of the scheme’s extension, we asked our expert financial team at Irwin Insolvency to explain in more detail what the Bounce Back Loan is and who is eligible to apply for it.
What Is the Bounce Back Loan scheme?
Bounce Back Loans are government-backed loans that can be claimed by small businesses and business owners (including sole-traders) in the UK, to assist them financially through the COVID-19 crisis. The British Government first introduced Bounce Back Loans at the start of the pandemic, but recently announced that the scheme has been extended (and is open for applications) until 31 January 2021.
Bounce Back Loans offer a low-interest, government-backed loan with a minimum value of £2,000 up to a maximum value of £50,000 per business. Loans vary in size, as they’re based on overall turnover. A small business can therefore only claim a loan up to 25 per cent of their total turnover.
Businesses that have already claimed a Bounce Back Loan can ‘top up’ their loan (up to the 25 per cent of turnover threshold) until 31 January 2021 as well, under the same conditions. Bounce Back Loans are interest-free for the first 12 months after approval, and thereafter the interest rate rises to 2.5 per cent per annum.
Bounce Back Loans are initially set to last six years, but these terms can be extended with the loan provider at a later date.
Who Can Apply for a Bounce Back Loan?
Bounce Back Loans are aimed at small and medium-sized businesses that are suffering because of COVID-19. The idea of the scheme is to help business owners who have often found themselves ineligible for other government-backed schemes, such as furlough or self-employment grants.
For example, many company directors have found themselves unable to take furlough, as this means they aren’t able to keep the company running. As they are continuing to work, they can’t take any other schemes either. The Bounce Back Loan in this situation can be used to pay company directors in order to keep the business running through the pandemic.
To be eligible for the scheme, businesses must be based primarily in the UK and they must have been trading before 1 March 2020. Businesses from outside the UK or businesses that were established after 1 March 2020 are not eligible for the loan.
It doesn’t matter which industry your business trades in, as long as it’s not banking or insurance. Public-sector bodies are also not entitled to these loans. Importantly though, your business must demonstrate that it has suffered financially because of COVID-19, be it a loss of revenue, profits or customers (or similar negative impact).
There are several other government loan schemes in operation at the moment, and business owners can‘t apply for the Bounce Back Loan if they already have a Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS), or COVID-19 Corporate Financing Facility. However, some of these existing loans can be incorporated into the Bounce Back Loans scheme; check with a financial expert for more information on eligibility.
Do You Need a Bounce Back Loan?
It’s important to remember that Bounce Back Loans are aimed at smaller businesses, with an effective turnover of £200,000 or less. For larger businesses, there are often more suitable financial programmes or loans available.
For small businesses that are struggling, the Bounce Back Loan is an excellent financial tool that can help with COVID-19 recovery. The loan can be used for a variety of purposes, as long as that purpose contributes towards keeping the business running. There are no strict guidelines, and it can be used to pay staff, directors, overheads and much more.
The loan is government-backed, and business owners and directors don’t need to provide security (you don’t need to mortgage your home or secure the loan against assets). The loans are being handed out widely, and there are few restrictions in place for those who apply for them.
Perhaps best of all is the low-interest rate. For 12 months, you pay zero interest. After that, the interest rate is perhaps one of the lowest you could hope to secure. Businesses can even pay back the loan early, with zero penalties, or seek an extension up to 10 years.
Regardless of your situation, it’s important to seek expert, independent financial advice before applying for a Bounce Back Loan. While the interest rates and terms are favourable, businesses still need to be able to repay the debt within the allotted time period, so don’t take out more money than you need to make it through the pandemic.
How to Apply for a Bounce Back Loan
Bounce Back Loans are backed by the government but are being provided by banks. Business owners can apply directly with their local bank for the loan, before 31 January 2021.
The process can take time, as background checks need to be run by the bank on the business. Apply a few weeks before the deadline, just to be safe.
Contact Irwin Insolvency Today for Your Free Consultation
With ever-changing rules and regulations governing a faltering economy in the midst of the pandemic, these aren’t the best times to try and go it alone. Government measures (including schemes such as the Bounce Back Loan) are constantly being reviewed and updated, as is the level of help and support your company could be entitled to.
With years of experience in the insolvency sector, Irwin Insolvency can provide the expert advice and analysis your business needs to survive these trying times. Our insolvency practitioners are up to date on the latest news and advice, and are ready to help you. Contact Irwin Insolvency today for your free consultation.