Running a business

Coronavirus Bounce Back Loan Scheme - guide to the scheme and making a claim

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    On 27th April 2020 the Chancellor announced a new Coronavirus Bounce Back Loan Scheme aimed at businesses needing to access funding due to the Coronavirus Pandemic. The scheme is available to limited companies and sole traders.

    The scheme is designed to provide quick access to cash to help with business continuity. We’ve put together this guide to help you make a claim.

    Please note Crunch cannot apply for a loan on your behalf.

    Background to the scheme

    The Coronavirus Bounce Back Loan Scheme (BBLS) went live on 4th May 2020.

    The scheme was established because the government was concerned many businesses were struggling to secure financing from the Coronavirus Business Interruption Loans (CBILS) announced on 20th March and needed quick access to resources to ensure business continuity. The Chancellor announced on 24th September that the government were extending the payback period for the loans to 10 years (up from the original six years). On 17 December 2020, it was announced that the government was extending the closing date for applying for either a CBILS loan or a Bounce Back Loan to the 30th April 2021 and that businesses who had previously applied for a loan but not taken the full amount could top up their loans.

    The Bounce Back Loan scheme is targeted at small and medium-sized UK Businesses who have been negatively affected by the coronavirus pandemic. It is designed to provide quick and efficient access to a business loan of between £2,000 and 25% of their turnover, the maximum loan is £50,000.

    The loan is to be paid back over up to 10 years.

    The loans may be particularly useful for otherwise viable businesses who do not qualify for the other grants available such as the Coronavirus Job Retention Scheme or the Self-Employment Income Support Scheme.

    The Government will guarantee 100% of the loans and there are no fees or interest to pay in the first 12 months, with no repayments due in this period. The government has also agreed with lenders that an affordable flat rate of 2.5% interest will be charged on these loans for the remainder of the loan term after the initial interest-free 12 months.

    Who can claim?

    Your business must be able to self‑declare to the lender that it:

    • has been impacted by the coronavirus pandemic
    • was not a business in difficulty at 31 December 2019
    • is engaged in trading or commercial activity in the UK and was established by 1 March 2020
    • is not using the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the Bank of England’s Covid Corporate Financing Facility Scheme (CCFF), unless the Bounce Back Loan will refinance the whole of the CBILS, CLBILS or CCFF facility
    • is not in bankruptcy or liquidation or undergoing debt restructuring at the time it submits its application for finance
    • derives more than 50% of its income from its trading activity
    • is not in a restricted sector (see the British Business Bank website for details of restricted sectors).

    Individual lenders may apply further tests.

    How long is the loan for?

    The length of the loan is 10 years, but you can repay early without paying a fee. No repayments will be due during the first 12 months, meaning if you repay in full within 12 months there will be no interest to pay.

    How do you apply?

    Loans are provided by individual banks who are accredited by the government through the British Business Bank. Businesses must apply online using a seven-question standardised application form.

    Guidance on how to apply is provided on the British Business Bank website.

    You need to choose a lender from the list on the British Business Bank website. Each lender may have a slightly different application process. You may find it faster to approach your own business bank provider if they are on the list. If you are turned down by a lender. you can apply to another lender on the list.

    Supporting documents

    You’ll need to provide documents that show you can afford to repay the loan. These will vary from lender to lender based on the amount of loan you are seeking. HMRC expects the documents you will need may include:

    • management accounts
    • cash flow forecast
    • business plan
    • historic accounts
    • details of assets.

    If you’re a Crunch limited company client, to help you submit an application we’ve prepared an article on how to access filed accounts, management information and trial balances from your Crunch account which you may need to support your application.

    If you do access a Bounce Back Loan for your limited company then here’s how to record a company loan in your Crunch software.

    If you operate as a sole trader, the BBLS loan will effectively operate as a personal loan. You take the money directly, and are personally liable to repay it.

    If the lender turns you down

    If one lender turns you down, you can apply to other lenders in the scheme. You may want to consider using a broker to find the right type of finance for your needs, or do your own research using the British Business Bank’s finance guide.

    Flexibility to pay back government Bounce Back Loans

    Businesses who took out a Bounce Back Loan can access a new Pay as You Grow flexible repayment system, providing flexibility to repay a Bounce Back Loan. This includes extending the length of the loan from six years to 10 years. Interest-only periods of up to six months and payment holidays will also be available to businesses.

    Should I take out a loan?

    This is something that needs careful thought. The rate of 2.5% is far cheaper than a typical business loan. The opportunity to have 12 months interest and fee-free, is certainly attractive. But of course, as with any loan, it does need to be paid back in full and you need to be sure that your business will be able to afford the loan repayments. If you operate as a sole trader, the BBLS loan must be repaid by you personally.

    You do not need to prove the viability of your business, so most businesses should be able to access a loan if they wish. If you have existing finance for your business that is more expensive, using the BBLS to pay these off could save you money. Though you will need to look at all of your business’s debts if you add a further liability.

    The BBLS is designed to provide immediate working capital to your business. This means you can use it to pay staff, creditors and your business running costs. The government has set some rules you need to follow. You can use a loan to support your income, but you can’t use it to pay dividends (unless there is a profit on your balance sheet and you don’t have the cash to pay it out as a dividend). You can use the loan to pay salaries, but not to increase them.

    The Bounce Back Loans do not affect your eligibility to other government support. As long as you believe you will be able to repay the loan, it is a very useful addition to the range of support available to businesses from the government.

    We will keep this article and our COVID-19 Hub up to date with all the latest updates as they happen.