A Guide to Bounce Back Loans
Help for Small Businesses and the Self-Employed
With millions of self-employed workers and small businesses being left out of pocket during the Coronavirus (Covid-19) pandemic, many have turned to the Self-Employed Income Support Scheme (SEISS), but some have fallen through the gaps and missed out on getting such support.
There is a new type of loan to help self-employed people and businesses stay afloat, set up with the purpose of helping small companies that cannot access the other funding schemes quickly enough.
These loans are known as Bounce Back Loans and over 860,000 were issued in the first month of the scheme being launched (May 2020).
Note that the Bounce Back Loan Scheme (BBLS) is separate from the Coronavirus Business Interruption Loan Scheme, which offers larger amounts but is not 100% state-guaranteed.
Here, we explain how Bounce Back Loans work, who is eligible, how you can apply for one and the process of paying it back.
What are Bounce Back Loans and how do they work?
The Bounce Back Loan scheme was launched in May 2020 amid fears that the previous Coronavirus funding would not be provided quickly enough for self-employed workers and small businesses to get back to work as restrictions eased.
8 Bounce Back Loan need-to-knows
Here are all the facts you need to know about Bounce Back Loans and how they provide help for small businesses and the self-employed.
You can borrow between £2,000 and £50,000, depending on your usual turnover. The amount you can borrow is capped at 25% of your total turnover for the 2019 calendar year, but new companies can provide an estimate. The more you earn, therefore, the more you will be able to borrow though this scheme.
The loans are interest-free for the first 12 months and you don’t need to pay anything back until the year has passed. The loans are set up to last six years, but you can overpay and repayment is flexible.
There is a fixed 2.5% annual interest charge after 12 months, which is cheaper than the average personal loan.
You are able to repay the loan at any time. This means that there is no penalty for repaying the loan early and some banks will even let you pay back a specific percentage (part-repay) or overpay, giving you greater flexibility than most loans.
Eligible businesses must have been established before March 2020. If your business was set up after that date, you won’t be eligible, and it must be trading as a ‘going concern’ when you apply. Temporary closure due to Coronavirus shouldn’t affect your application.
If you can’t repay, it’s difficult for them to take your possessions. This is because the loan is what’s known as ‘unsecured’ (which sounds bad, but it’s not). ‘Secured’ loans include things like mortgages, where the lender can take your home easily if you’re unable to pay. Here, the government provides the security, rather than you, which makes it a lot harder for them to take your assets.
The Bounce Back Loans are common with banks. 14 or more banks are offering Bounce Back Loans, so you shouldn’t have any difficulty coming across a suitable provider.
Credit ratings (personal or business) do not affect applications. Most eligible self-employed people or small businesses should be accepted for Bounce Back Loans relatively easily, as the process of applying is straightforward.
The loan may not appear on your personal credit report. Lenders will do soft credit checks on both your personal and business credit reports, and the loan will almost definitely show on your business credit report, but it’s unlikely that it will show on your personal report.
You don’t need a business bank account to get a Bounce Back Loan. You do, of course, need a business, but there are plenty of providers that are offering loans to those who don’t have a business bank account with them.
You can still get the government income support grants and some other benefits. Even if you get a Bounce Back Loan, you could still be eligible to receive government grants from the Self-Employed Income Support Scheme (SEISS) and you may be able to get universal credit, depending on your situation.
You may also find use in our guides for both employees and self-employed workers affected by the Coronavirus:
Who should get a Bounce Back Loan?
Whether or not you should get a Bounce Back Loan depends on your individual circumstances, or your business’, but there are many small businesses and self-employed people that could benefit from the scheme.
While many people have been supported by the Self-Employed Income Support Scheme, there is also a considerable amount of people that are not eligible for that help, including businesses that were formed after September 2018, people or businesses with over £50,000 in yearly profits, and those who work for themselves through a limited company.
While it isn’t ideal that you have to opt for a loan – rather than a grant which doesn’t need to be paid back – it does provide a useful way of ensuring that you are able to stay afloat if you’re struggling during the Coronavirus pandemic.
If you have been rejected universal credit and are not eligible for the official non-repayable grants offered by the government, taking out a Bounce Back Loan may be your best option – provided you use it sensibly and make full use of the 12-month interest-free period.
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Eligibility for the self-employed or small business loans
As with all business loans, there are some requirements that must be met in order for you or your company to be eligible.
Most notably for Bounce Back Loans, your business must have been established before the 1st of March 2020 for it to be accepted by the scheme.
Also, your small business or self-employed work must still be trading as a going concern when you apply (this excludes temporary cessation as a result of Covid-19) , and any difficulties or issues relating to your business or profits must be a consequence of Coronavirus.
How the loans work and the eligibility criteria will vary in relation to your circumstances, for example, sole traders and business owners may have slightly different rules compared to limited company director, so be sure to check this on the government’s website or with your chosen provider.
How to get a Bounce Back Loan
You are required to apply for a Bounce Back Loan directly through a provider or bank, of which there are over fourteen.
When you get in contact with the bank, you will be asked to complete an application form, which typically includes information such as your annual turnover, the amount you want to borrow, your account number, and a copy of your tax return.
Most banks will also ask you to confirm that your business has been negatively affected by the Coronavirus, but according to Martin Lewis’ Money Saving Expert, you will not need to “prove the viability of your business”.
Bounce Back Loan banks and providers
Here’s a list of all banks that currently offer Bounce Back Loans in the UK (bear in mind that some are only exclusive to existing customers):
- Bank of Scotland
- Clydesdale Bank
- Co-op Bank
- Danske Bank
- Lloyds Bank
- Starling Bank
- Ulster Bank
- Yorkshire Bank
IMPORTANT: All of the above allow existing business customers to apply, but you may need to open a business account if you currently run your company through a personal account only.
Many of these banks will not accept new business customers (people who have neither a personal or business account with them); only Barclays, HSBC and Starling Bank will consider completely new customers, but some conditions must also be met.
For example, you will need to open a business account, rather than a personal one, to get a Bounce Back Loan through Barclays, and Starling Bank is prioritising those who currently use Starling as their primary account.
If you are running a small business, you may want to outsource these tasks to save money!
The repayment of Bounce Back Loans
The repayment of Bounce Back Loans doesn’t necessarily work the same way as your average personal loan.
The first 12 months are interest-free, following which you are due to make 60 repayments in total. Every month, you will pay back 1/60th of the amount you owe, with interest added on top. This means that the amount you pay back should decrease each month as the amount you owe is also decreasing.
Repayments are more flexible than most other loans and you can overpay early to reduce the amount you owe and the interest that will be accumulated.
The Bounce Back Loan Scheme is a useful alternative to self-employed people and small businesses who perhaps fell through the net of the previous Coronavirus income support schemes, especially due to its 12-month interest-free period.
Of course, as with all loans, be careful not to borrow more than you or your business can afford to pay back, as this will only result in further financial issues.
For more financial advice, browse our site or head over to our related guides: