The Bounce Back Loan Scheme explained

Bounce back is a phrase that you will hopefully be hearing a lot more of during the coming months, whether it is in relation to the economy improving, businesses trading again or inspirational stories of survivors of Covid-19. But at the moment you are more likely to hear it in relation to funding because the Bounce Back Loan Scheme is the latest government initiative to help small businesses through the coronavirus pandemic.

What is the Bounce Back Loan Scheme?

The new loan is aimed at sole traders and small businesses – with fewer than 10 employees – and is supposed to be quicker and easier to apply for than the Coronavirus Business Interruption Loan Scheme (CBILS), which is reassuring to hear after CBILS received such severe criticism.

And if early demand is anything to go by it will be one of the most popular schemes, with reports of 79,500 applications received by the first afternoon (04 May), which far outweighs the total of 52,807 applications for CBILS which was launched on 23 March.

This government-backed credit is seen as a lifeline for thousands of sole traders and small businesses nationwide, from plumbers to coffee shops and garages to hairdressers. The importance of these types of businesses is why the Bounce Back Loan Scheme has been launched, as Business Secretary, Alok Sharma explains:

“We are backing small businesses, which are the backbone of our communities, with the support they need to stay afloat.

“This new scheme of 100% government-guaranteed loans gives owners of even the smallest businesses the confidence and flexibility to borrow a sum which works for them. This will help ensure they can continue to trade, and be a key part of our efforts to reboot the British economy.”

However, there were some words of caution from UK Finance, which represents banks, who stated that businesses should “think very carefully before taking on new debt”.

What are the terms?

The amount a business can borrow will be significantly less than under the CBILS and will range from between £2,000 and £50,000 and up to a maximum of 25% of their turnover. Businesses will not have to make any repayments during the first 12 months and the government will cover any fees and interest for that period. The loans will last up to six years and borrowers will have to pay a flat rate of 2.5%. The loan is 100% guaranteed by the government which should encourage banks to lend money quickly to businesses.

Who is eligible?

To qualify, firms must have been trading on 01 March 2020 and must not have been a “business in difficulty” on 31 December 2019. There is no restriction on who can apply but because of the size of the loans the vast majority are expected to be sole traders and small to medium sized businesses. The Treasury has confirmed that firms that have already applied for, or received a CBILS of under £50,000, can change it to a Bounce Back Loan.

How do you apply?

Borrowers can apply through the bank they have their business account with and complete a simple application form online which only has seven questions that include annual turnover, the amount of credit required and account number. There is no need to offer personal guarantees. With such a straightforward application process the Treasury says the funds should be available within days.

Applicants don’t have to stick with their existing lenders and as well as the top five banks, the network of accredited lenders includes SME lending specialists such as Newable and peer-to-peer platforms like Funding Circle.

For more information on how to apply please click here.