If you’re an active member of news forums, you must have been seeing various posts about Bounce Back Loan Schemes or BBLS.
I believe that must be why you are here reading this.
Well, if you also happen to be here by chance, Bounce Back Loan Scheme is an initiative of the UK government to help small businesses get back on their feet due to the impacts of Coronavirus.
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What are Bounce Back Loans?
The Bounce Back Loan Scheme (BBLS) enables smaller businesses to have access to funds more quickly during the coronavirus outbreak.
The Coronavirus pandemic has affected many businesses and the economy around the world. Many businesses and individuals have had to cut their budgets to adjust to this trying period.
That is why I see this new scheme has a very good initiative.
The idea of the scheme is those small businesses can borrow between £2,000 or up to 25% of their turnover. They also have the potential of borrowing up to £50,000 if they meet the eligibility conditions.
Before you argue about the benefits of incurring additional debt on your expenses, I want you to keep reading.
One of the things that make applying for the bounce back loan scheme a good idea is the fact it is interest-free for the first 12 months. After which, the interest rate increases to 2.5% per year.
The main motive behind the low 2.5% interest rate is to entice business owners. The reason is businesses have been very sluggish in demanding for emergency coronavirus business loans.
According to the British Chambers of Commerce, almost 60% of small businesses will not buy into the idea of a Coronavirus Business Interruption Loan.
What makes the BBLS different is that the interest rate is less than half of the minimum interest rate charged for Coronavirus Business Interruption Loan (CBILS).
According to Rishi Sunak, a politician and chancellor of Exchequer, “Small businesses will play a key role in creating jobs and securing economic growth as we recover from the Coronavirus pandemic. The Bounce Back loan scheme will make sure they get the finance they need – helping them bounce back and protect jobs.”
Before I continue, if for any reason you need a loan larger than the £50,000 threshold of the BBLS, please check other government support. If not please keep reading.
What are the key features of the Bounce Back Loan Scheme?
- You can borrow loans from £2,000 to £50,000 or up to 25% of your business turnover.
- The scheme has a full government-backed guarantee for the lender.
- Lenders can’t take recovery action on a borrower’s personal assets.
- The Government takes care of the interest and fees for the first 12 months through ‘Business Interruption Payment’ (BIP) plan.
- The interest rate after the first year is 2.5% per annum.
- The length of the repayment is 6 years but you can repay sooner if you can.
- You don’t need an additional fee to access the scheme.
How to know if you’re eligible?
The following are the factors that make you eligible for the loan.
- You are based in the UK
- Your business was established before the 1st of March 2020
- Your business has been severely affected by the coronavirus (Covid-19)
- You are not a beneficiary of any government-backed Coronavirus loan scheme
You’re not eligible if;
- You are already a beneficiary of a Coronavirus Large Business Interruption Loan or the Bank of England’s Covid Corporate Financing Facility
- You already have a Bounce Back Loan. You are only eligible to one loan and it can’t be increased once approved.
- You are an insurer, bank, public sector body, reinsurer, and further-education establishment.
- Your business is about to start collective insolvency proceedings. That is you are about to file for bankruptcy.
You also cannot apply if you’re already benefiting from the following,
- Coronavirus Business Interruption Loan Scheme (CBILS)
- Coronavirus Large Business Interruption Loan Scheme (CLBILS)
- COVID-19 Corporate Financing Facility
However, if you applied for a loan of up to £50,000 under any of these schemes, you can arrange with your lender on how to transfer it into the Bounce Back Loan Scheme.
How Bounce Back Loan Repayment works
There is no interest or repayments in the first year.
After that, you are scheduled to make 60 repayments of the capital (the amount you borrowed).
However, this doesn’t work as a normal personal loan, in that you have fixed payments.
Each month, you repay 1/60th of the capital, plus the interest that has accumulated that month. That means you repay more in the first repayment month than, say, in the 30th, as the amount you owe is decreasing.
Where to find your Bounce Back Loan
You can apply for your BBL from any of the following accredited banks.
- Allied Irish Bank
- Bank of Scotland
- Clydesdale Bank & Yorkshire Bank
- Danske Bank
- The Co-operative Bank
- Metro Bank
- Bank of Ireland
- Starling Bank
- Skipton Business Finance
- Ulster Bank
- Paragon Bank
How to apply for a Bounce Back Loan
To apply for a BBL, you will have to approach a suitable lender of choice through the lender’s website.
You will then fill an online application form on their preferred lender’s website.
The websites have been programmed to certify your eligibility for the Bounce Back Loan.
Once you are deemed eligible, your company will then be scrutinized for Anti-Money Laundering, standard customer fraud and KYC checks.
It is also important to note that State aid restrictions may be applicable in some cases. Lenders can also decide not to offer you a loan but another type of finance.
What To Do If the lender turns you down?
The advantage of having multiple accredited lenders is so you can make a decision based on preference.
If your application gets rejected by a lender, you can simply apply to other accredited lenders.
You can make the whole process easier either by conducting your own research using the British Business Bank’s finance guide or you may consider employing the services of a broker.
Brokers will find the right type of finance for your business.
What if I don’t have a business account?
Most of the accredited banks won’t accept your application without a business account.
It doesn’t matter if you’re already a customer or an intending customer.
The only banks that accept BBL applications from existing customers without a business account are Clydesdale Bank, Santander, Yorkshire Bank and HSBC.
HSBC allows sole traders whose businesses started on or before 5 April 2019 and are First Direct personal current account customers to apply through the HSBC online portal.
They also allow non-existing customers to open a feeder account to apply for a Bounce Back Loan.
The drawback is that you will end up further down the queue.
Banks like RBS, Ulster Bank and NatWest also allow existing customers to get the loan without a business account. All they have to do is open a ‘feeder’ account.
This account acts as a temporary account for receiving the money before paying it elsewhere.
A Step in The Right Direction…
The Bounce Back Loan Scheme has been greeted with a lot of excitement by business industry experts.
Some notable contributors to this excitement are Emma Jones, Rain Newton-Smith and Brian Palmer.
Emma Jones, a business expert and founder of Enterprise Nation was quoted as saying, “These new ‘bounce-back loans’ will close one of the gaps facing micro firms.
The chancellor is correct that this group are less keen and less able to take on debt under normal circumstances – but may now feel slightly more confident that this bridging finance now exists.”
She then added that banks being able to give out the loan in 24 hours and if they will be affordable in the long run is a big question.
Brian Palmer, a tax expert at the Association of Accounting Technicians also said,
“The launch of the Bounce Back Loan, supported by government guarantees, a low rate of interest, no arrangement fees and a 24-hour turnaround is just the sort of thing that small businesses have been crying out for.
The loan amounts aren’t huge but are significant enough to be of immediate help.
However, there will be some fears that when the lockdown is eased, the bounce back may not be robust enough to enable small businesses to meet the repayments.”
Rain Newton-Smith, the CBI chief economist, was also quoted saying, “The chancellor is standing shoulder-to-shoulder with small businesses to help them through the crisis.
A 100 per cent government guarantee on loans and a simple way of applying will be a lifeline to many small businesses and sole traders under pressure.
However, not everyone has been so receptive of the scheme.
Mark Neath, director at Old Mill, argues that the BBLS should be made grants instead of loans since the government has already admitted that a lot of the bounce back loans will go bad.
Neath was also quoted saying, “Why not simply give a grant and spare the banks and business owners a lot of work and ultimately stress and pain to end up at the same place?
“The media narrative I keep reading day after day is that banks’ lending criteria are denying loans to businesses.
Perhaps the story ought to read: banks’ lending criteria protect businesses from inappropriate borrowing.”
The Disadvantages To Bounce Back Loans
The Bounce Back Loan scheme is a very attractive and convenient prospect but it isn’t without its disadvantages.
No matter how you look at it, a debt is still a debt.
You will have to repay it with interest unless you can pay back within a year.
My advice is not to be tempted by the loan if you won’t use it for your business endeavours.
This is because you will mount up debt and start regretting later.
Because you are allowed to borrow up to 25% of your annual turnover doesn’t mean you should. The best you can do for convenience is to borrow the exact fee you need, nothing more.
If you won’t need much loan for your business then borrow less.
However, in situations whereby you need to borrow the maximum required fee then you can borrow more.
But you must use the money for its intended purpose, which is scaling your business.
The earlier you repay the loan, the lower the interest and you can even get zero interest if you’re able to repay in the first year.