As the covid-19 pandemic continues to threaten and damage businesses across the UK, the government has announced its Bounce Back Loan Scheme to help companies survive during these difficult times.
This follows the widely-criticised Coronavirus Business Interruption Loan Scheme, under which only a fraction of businesses successfully managed to secure funding.
The Bounce Back Loan scheme is intended to quickly offer financial support to small and medium businesses and over than 1.26 million loans have already been issued across the UK.
If your business requires this government-backed support then don’t wait for the deadline on the 30th November, you need to act now.
To help struggling businesses, Clarke Bell has put together this guide on everything you need to know about the Bounce Back Loan Scheme, from who is eligible, what the repayment terms are and how you can apply.
What is the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme was introduced by the government to help small to medium businesses access instant financial help amidst the current global pandemic.
Under the Scheme, such businesses can borrow between £2000 and up to 25% of their turnover, with a maximum loan amount of £50,000. Businesses are not required to make any repayments within the first 12 months.
The government has guaranteed 0% interest rates for the first 12 months, followed by interest rates of 2.5% a year after this time.
The scheme is open to applications until 30th November 2020, but if you’re in need in help then it’s best to act now – don’t wait until the deadline. After all, most lenders will require you to book a background check appointment before the deadline and these slots are quickly running out.
How long will the loan last?
The loan initially had a lending period of 6 years, however, this was recently changed by the Chancellor.
On the 24th September Rishi Sunak introduced the Pay as you Grow scheme to allow businesses to pay back their loans with more flexibility. Under the scheme, businesses can now:
- Payback their loan in 10 years, extended from 6 years
- Choose to make interest-only payments for up to 6 months
- Pause repayments for up to 6 months. This option can only be used once and only after having made 6 payments
Businesses can choose to pay back their loan early without facing extra fees or penalties.
By extending the borrowing period to 10 years, your monthly repayments will be cut by almost half, although you will have to pay more interest.
Who is eligible for the Bounce Back Loan Scheme?
Businesses can apply for the loan if they meet the following criteria:
- They are UK based
- They were established before 1 March 2020
- They have been adversely affected by the coronavirus pandemic
Businesses that are already claiming government help under the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme or COVID-19 Corporate Financing Facility cannot apply for the Bounce Back Loan Scheme. However, if you have been given a loan of up to £50,000 under one of the following schemes, you are eligible to transfer it into the Bounce Back Loan Scheme and have until the 4th November to arrange this with your lender.
How do the loan repayments work?
As we’ve already mentioned, there is no interest or repayments on the Bounce Back Loan within the first year.
After this point, under the loan as it currently stands, you will be required to make 60 repayments of the amount you borrowed. If you extended the length of your loan to 10 years, you will be required to make 108 payments.
The Scheme isn’t repaid like a personal loan would be in fixed payments. Instead, you will repay 1/60th or 1/108th of the capital each month, plus the interest that has built up. This way of repaying means you will pay more in the first month than the 60th, as the amount you owe decreases.
What can you use the Bounce Back Loan for?
The Chancellor has confirmed that the Bounce Back Loan can be used on investment or working capital for your business, which includes covering bills, running costs and wages.
How can I apply for the Bounce Back Loan Scheme?
To be approved for the Bounce Back Loan Scheme, businesses must apply with a participating lender. Businesses are required to apply through the lender’s website, where they will be asked to fill in an application form and declare their eligibility.
You will be asked to give details of your annual turnover, your account number, the amount you wish to borrow and a copy of your tax return.
From here, the lender will make a decision on whether to offer you the loan.
Clarke Bell would suggest that you approach your own bank in the first instance if they are a participating lender.
If one lender denies your application, you are still eligible to apply with other lenders.
Although this sounds easy, recently, some businesses have reported being blocked from accessing the Bounce Back Loan by banks and lenders.
Many financial institutions have recently withdrawn from the government-backed scheme after being inundated with applications. This is despite the scheme being extended until the 30th November.
Many businesses have now found themselves in the difficult position where they are being rushed to switch banks to secure an account with one of the few lenders continuing to accept applications from new customers.
If you still haven’t applied for the loan scheme, it’s time to act now before it’s too late or reconsider your options.
Let Clarke Bell help your struggling business
With many banks and lenders blocking access to the Bounce Back Loan, Clarke Bell know that lots of company owners will face the difficult scenario of failing to secure a loan to help their struggling business.
Likewise, for some struggling companies, borrowing more money under the scheme will merely dig you deeper into financial trouble.
For these companies, liquidating might be the better option.
If your company is facing cash flow problems and you wish to discuss the best next steps forward for you, get in touch with Clarke Bell today for free, confidential advice and let us see what is best for you.