Bounce Back Loans – what you need to know

To provide rapid financial support to small businesses struggling with the impact of the coronavirus pandemic, the government has launched the Bounce Back Loan Scheme (BBLS). Designed to be faster and simpler to access than the existing CBILS scheme, BBLS offers a vital cash injection to help businesses stay afloat.

The loans are 100% guaranteed by the government, meaning there is no requirement for personal guarantees or complex forward-looking financial forecasts to secure the funding.

Key features of the scheme

Businesses can borrow between £2,000 and up to 25% of their turnover, subject to a maximum cap of £50,000. The government covers the interest payments for the first 12 months, and no capital repayments are required during this initial period. After the first year, the interest rate is fixed at a highly competitive 2.5% per annum. The loans are available over a six-year term, but they can be repaid early without any early repayment fees.

Eligibility and application

The scheme is open to most UK-based businesses that have been negatively affected by the coronavirus. The application process is heavily standardised and relies on self-certification. Businesses must confirm that they were not an 'undertaking in difficulty' on 31 December 2019 and that they will use the loan for the economic benefit of the business (not for personal purposes).

A loan, not a grant

While the terms are exceptionally favourable, it is crucial to remember that a Bounce Back Loan is debt, not a grant. The business remains 100% liable to repay the capital and the interest after the first 12 months. If the business fails and enters insolvency, the government guarantee protects the bank, not the business owner. Directors must carefully consider whether the business will generate sufficient cash flow to service the debt once the repayment holiday ends.