Should your business consider the coronavirus Bounce Back Loan?

There’s no denying how much havoc covid-19 has inflicted on the economy, we are now in the deepest recession the UK has ever seen as a result of the pandemic. With the fight to keep our jobs and businesses going strong, many are turning to the government for support. You may have heard the term ‘bounce back loan’ with increasing regularity and are wondering if this could be your long-awaited rescuer.

Following the winddown of furlough, lots of businesses are facing financial difficulty, liquidation, redundancies, and administration. To save your business, you may be considering looking at what funding options are available to you including the government’s Bounce Back Loan Scheme (BBLS). Announced in April 2020, the BBLS is a new scheme and businesses are rightly approaching with caution in an attempt to avoid quick-fixes and further financial trouble in the coming months. Below, I share what the coronavirus Bounce Back Loan Scheme is and whether you should consider it an option to help your business.

What is the coronavirus Bounce Back Loan?

The coronavirus Bounce Back Loan Scheme (BBLS) was brought into effect by the UK government to support smaller businesses and allow them to access finance more easily during the outbreak. The scheme allows eligible businesses to borrow between ￡2,000 and up to 25% of their turnover with a maximum available loan amount of ￡50,000.

Is my business eligible to get the loan?

Guidelines on eligibility for the BBLS can be found on the UK government website here. However. a few of the basic criteria are covered below:

·        Your business must be based in the UK

·        Your business must have been established before 1st March 2020

·        Be able to demonstrate the adverse impact on your business caused by coronavirus

·        Your business was not classified as a business in difficulty on or before December 31st 2019

Should my business consider the coronavirus Bounce Back Loan over all others methods of funding?

You should always take careful consideration to make sure that taking out a loan is the right choice for your business. When it comes to the BBLS, there are a few points to consider that might help to make up your mind.

No personal guarantee

Lenders are not allowed to request personal guarantees for the Bounce Back Loan Scheme. This means that, if you are struggling to repay the loan, the terms of the BBLS will prevent recovery action over personal effects e.g. private residence or primary personal vehicle.

2.5% interest rate

With no fees or interest to pay for the first 12 months and a government guarantee of 100% of the loan, it can look like a very attractive option to businesses facing financial difficulty. After the initial 12-month period the interest rate rises to 2.5% a year. For most smaller businesses and startups this is usually considered to be a low interest rate with the typical interest rate for loans for these businesses usually resting at around 8 or 9%.

Early payback option

The total duration of the loan is 6 years, however there is an option to repay your Bounce Back Loan early without paying additional fees. This gives your business more flexibility when repaying, and, as no repayments are due during the first 12 months, your business has got plenty of time to get back on track.

Using the loan for the right reasons

Because the loan is backed by the government (not the bank) there is always a risk that the scheme will be abused. Companies that were in trouble prior to the coronavirus outbreak may sneakily try to acquire a loan, which means that it is not used for coronavirus recovery which is purpose it was provided for. Similarly, some companies may take the money without intending to use it for the benefit of the business e.g. using the money for personal gain and then closing their business.

If you’ve already used the coronavirus Bounce Back Loan Scheme

In the cases where ￡50k isn’t enough to support your business then you then can opt for the government’s Coronavirus Business Interruption Loan Scheme (CBILS). If you have already used the BBL scheme, like many UK companies have, then you will need to consider alternative funding options from private companies. There are a number of alternative options out there including: factoring, venture capitalists, high street banks, crown funding, peer-to-peer lending, and your existing ledger.

Overall, the coronavirus Bounce Back Loan Scheme looks like an extremely viable option to many businesses. With a low interest rate, no personal guarantees, and early payback options the BBLS will be able to give businesses a helping hand to recover from the coronavirus pandemic. However, when you’re applying, make sure it’s for the right reasons and for business-only purposes! With such uncertain times ahead, only time will tell if the companies will bounce back or bounce the bank!

The government’s Bounce Back Loan Scheme is due to close 4th November you can find more information on applying and criteria on the government’s website.