Chancellor Rishi Sunak has announced changes to the Bounce Back Loan Scheme as part of a package of financial support during the ongoing coronavirus crisis.
In short:
- Loans can now be extended to last 10 years (from six currently).
- Businesses can take payment holidays and interest-only periods if they need to.
Bounce back loans: the background
The Bounce Back Loan Scheme was launched because of fears small businesses couldn’t access coronavirus funding quickly enough.
How do bounce back loans work?
Bounce back loans are separate from the Coronavirus Business Interruption Loan Scheme, which is for larger amounts, but not 100% state-guaranteed. If you’ve already applied to that you can apply to have it switched to this scheme if you prefer.
On Thursday 24 September, the Chancellor announced more flexibility for repaying bounce back loans under the ‘Pay As You Grow’ Scheme – meaning new and existing borrowers can choose to extend the term of their loan to cut monthly repayments. Businesses can also take payment holidays or have periods where they make interest-only payments.
Here’s what you need to know about bounce back loans:
- New. You have until the end of November 2020 to apply. The deadline was originally Wednesday 4 November, but this has been extended to the end of the month.
- You can borrow between £2,000 and £50,000. Though the amount is capped at 25% of your total turnover (usually for calendar year 2019, or new businesses can estimate).
- No interest will be charged and no repayments will need to be made in the first 12 months.
- After 12 months, all banks will charge a fixed 2.5% annual interest. This is far cheaper than a typical personal loan.
- You can repay the loan early without penalty. Or with some banks you can part-repay or overpay.
- New. The loans can now last for 10 years. So that’s a year interest-free and the rest at 2.5%. The loans were originally set up to last for six years, but this has now been extended to 10 – which the Government says could cut monthly repayments by almost half, though you will end up paying more interest. However, you can repay at any time without paying a fee, which gives you flexibility – and of course, the sooner you repay once interest is charged, the smaller the overall cost.
- New. You can now take payment holidays or interest-only periods of up to six months. You can use the option to move temporarily to interest-only payments up to three times, with each interest-only period lasting up to six months. And you can take one payment holiday over the length of the loan, where you pause repayments entirely for up to six months. You can only use this option once you’ve made at least six payments. Remember that you’ll end up paying more in interest overall if you use one of these options.
- The loans are unsecured. While this sounds bad, it’s actually good. Secured loans include mortgages, where the lender can take your home if you don’t repay. Here you don’t give security (the Government does) so it’s far more difficult for a credit provider to take your assets if you can’t repay.
- Your business must have been established before 1 March 2020. It must also still be trading as a going concern at the point of application (temporary cessation due to coronavirus doesn’t matter) – and the reason for any issues must be due to coronavirus.
- Credit ratings (business or personal) won’t affect your eligibility – so most people should be able to get these loans. You don’t need to prove the viability of your business and the application process is straightforward.
- The loan will likely go on your business credit report, but not on your personal one (though banks may do ‘soft’ credit checks on both).
You apply for a bounce back loan via a bank – at least 14 are offering them.- You need a business to set these up but don’t need a business bank account. At least some of the banks offering these loans don’t require you to have a business account with them (though it’s difficult to get the loans if you don’t have a business account with the relevant bank).
- Bounce back loans DON’T affect your eligibility for other Government personal support. You can still apply for a bounce back loan and get the self-employment income support grants, and you may still be eligible for universal credit.
- Bounce back loans can be used to repay existing finance. We’ve confirmed this with a number of individual lenders. We’re still checking whether there are any that have specific terms to prevent it.