New 'bounce back loans' – help for small businesses & income support for those missing out elsewhere

Small businesses struggling due to the coronavirus can now apply for a new 100% state-backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months. Here we take you through the loans, bank by bank, and how they can be used to provide income support for those who aren't covered by other schemes – plus the Treasury answers your questions. 

The Bounce Back Loan Scheme has been launched because of fears small businesses can't access coronavirus funding quickly enough. While we don't normally cover business loans, Martin's made an exception here, because he believes it provides a potentially useful backdoor support system for those who have fallen through the gaps of other measures. For example, if you're self-employed but don't qualify for the Self-Employment Income Support Scheme, or for limited company directors (see Martin’s limited company directors' help video too).

The info below is the latest we have as of 8pm on Tuesday 5 May. However, this is a developing story that we'll keep updating as more info comes in. Please let us know if you have any queries about the guide. 

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. 

Here's what you need to know about bounce back loans:

  • 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.      

  • The loans are set up to last for six years. So that's a year interest-free and the rest at 2.5%. However, as you can repay at any time that gives you flexibility, of course, the sooner you repay once interest is charged, the smaller the overall cost.

  • The loans are unsecured. While this sounds bad, it's actually good. Secured loans include mortgages, where they 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 them 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 (temporary cessation due to coronavirus doesn't matter) at the point of application – and the reason for any issues must be due to coronavirus.

  • Credit ratings (business or personal) won't impact your eligibility – so most should be able to get these loans. You don't need to prove the viability of your business and the application process is relatively straightforward. 

  • The loan will likely go on your business credit report, but not on your personal one.

  • At least eight banks 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. 

  • 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.

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