Bounce back loan scheme is an initiative introduced by the government in April 2020. It provides a lifeline to small and medium sized businesses during the coronavirus pandemic. It allows small businesses to access funds quickly during the difficult time of COVID-19 outbreak. Because small and medium businesses usually do not cover the business loans a bounce back loan can be a great support for them to fulfil their financial requirements. This type of loan is vital for securing economic growth in situations when most businesses are facing difficulties because of the restrictions in place to stop the spread of coronavirus.
Here is a complete guide to bounce back loan so that you understand it in a better way.
What is a Bounce back Loan?
A bounce back loan is a government-backed loan for small and medium size businesses and sole traders. It is available at major banks such as Natwest, TSB and Barclays. These loans are unsecured just like personal loans so there is no need to use your vehicle or property as a collateral. The government provides a 100% guarantee on the amount you borrow. However, you must keep in mind that you are responsible to repay all the debt. The government guarantee is only activated after the lender has chased you for what is owed. The bounce back loans is a great way for small businesses to take steps towards success even in the worst situations.
How Does It Work?
Bounce back loans are different from Coronavirus business interruption loan schemes. If you have applied in that scheme, still you can apply for a bounce back loan. The loan is available through many accredited lenders and partners. A business can apply for a minimum amount of £2000 to a maximum of £50,000. Moreover, businesses do not have to repay the loan amount during the first twelve months. Loan terms can be extended up to ten years with a fixed 2.5% interest rate. Lenders also offer an option for borrowers to top up according to the scheme rules.
You can apply to bounce back loan schemes if you have a small or medium business based in the UK. Small and medium sized businesses do not have a specific definition but the businesses with an annual turnover over £200,00 fall under this category. Any type of business such as online retailers, florists, coffee shops, hairdressers or accountants can apply for loan. The main thing for eligible businesses is that they must be established before March 2020. Businesses from any sector are eligible except public sector, banks, insurers and state funded primary and secondary schools.
How to Apply?
You can apply through lenders involved in this scheme, there are 29 lenders participating in the scheme. Most of the lenders are major retail banks. You can approach any lender by using their website. There you can apply by simply filling an application form. The lender will then declare whether you are eligible or not based on the information you provide. If one lender rejects, you can apply through another lender in the scheme. It is up to the lender to give you a bounce back loan or offer you another type of finance. Always bear in mind that you are responsible to pay back the complete amount you borrowed. The date for application was extended to 31 March 2021. Now it is closed.
Pay As You Grow
In september 2020, the bounce back loan scheme was made more flexible in repayment terms through the government’s new repayment system called pay as you grow. With this system businesses who have taken out a loan can extend loan term from 6 to 10 years, can pause repayments for upto six months and can make interest only payments for six months. It will help businesses to manage their cash flow and have a better chance of getting back to growth.
- Annual interest rate is low i.e 2.5%.
- Quick access to funds to help your business to grow.
- No fees or repayment in the first twelve months.
- You can repay early or overpay without any early payment fee.
- Loan is unsecured.
- With fixed interest rate repayment remains the same during loan term.
- You can not borrow more than £50,000.
- You can not apply in any other Coronavirus funding scheme.
- You have to repay the debts
Overall we can say that the bounceback loan scheme has many benefits for small businesses that are badly affected by the Coronavirus. Businesses can use the loan amount to pay wages, invest in marketing or purchase new stock. This scheme gave lenders a full government backed guarantee against outstanding loans.