Bounce Back Loans

cheque clearing system cheltenham

Small businesses that are impacted by the pandemic are eligible to apply for a 100% state-backed loan worth up to £50,000.  The scheme helps small and medium-sized businesses to borrow between £2,000 and £50,000.  Was launched because of fears small businesses would not be able to access Coronavirus funding quickly enough.   The amount of loan available is based on 25% of turnover.   The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months.   After 12 months the interest rate will be 2.5% a year.

If you need a larger loan there are other schemes available.   The Coronavirus Business Interruption Loan Scheme is designed to support UK based small and medium-sized businesses, with a turnover of up to £45 million, with a viable business proposition but are struggling with the challenges of the coronavirus situation.   See our article on this scheme in our blog section.

Key Points of the Bounce Back Loan.

  1. Deadline for final applications has been extended to 30th November 2020.
  2. Interest free for 12 months thereafter 2.5% fixed annual interest.
  3. Loans can be extended for up to 10 years.
  4. Businesses can also take payment holidays or have periods where they make interest-only payments.
  • Payment holidays pausing payments for up to 6 months available after 6 payments have been made.  Note this will increase overall interest payable.
  • Interest-only periods of up to six months on 3 separate occasions.

5. Interest free for 12 months thereafter 2.5% fixed annual interest.
6. You can repay the loan early without penalty.
7. You can part repay and only pay interest on the amount of loan retained.
8. The loans are unsecured.  The Government give the security so It will be more difficult for Creditors to take your assets if you cannot pay them.
9. Your business must have been established before 1 March 2020 and it must be trading as a going concern when you apply for the loan.   Note that temporary business closure due to the pandemic will not disqualify you from applying.
10. Credit ratings business or personal will not affect your eligibility
11. Application is very straight forward and funds can be available in 24 hours.   Most businesses will be able to secure these loans.
12. To apply for a bounce back loan, you will need to contact a bank directly and fill in a short online application and answer all questions accurately and honestly.   You could be liable to prosecution if you make false statements to secure the loan.   You will need details of your annual turnover, bank account details and other self-assessment and tax details etc….   , the amount you want to borrow and you will need to make statements.
13. The loan will likely go on your business credit report but not on your personal one.
14. In most cases you will need to have a business loan with the bank you are making the loan application with.
15. Bounce back loans do not 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.
16. Some banks allow bounce back loans to be used to repay existing finance. You will need to check this with your bank.

Other factors and considerations

We now list some potential issues and concerns that we have in your personal administration of the loan and how you use it.   We will give some examples of how to stay within the rules and use the loan sensibly minimising risk and getting the best out of the loan for the business.

  1. The rules are not strict but the general rule is that the loan must be used for investment or working capital.   Using the loan funds to fly out to the Bahamas on a luxury holiday would be a serious misappropriation of the loan.
  2. You can use the loan to support your income if your income has reduced due to the pandemic.   What you cannot do is increase your income by the loan amount in order to have extra holidays, better standard of living etc…..
  3. You can use the loan to pay business bills such as rent, wages, running costs etc….. That is what it is there for.  To help you survive difficult times.
  4. Be conservative and borrow only what you need and can afford but borrowing more in case you need it is not against the rules.  In fact it may be prudent to take the maximum and keep some in reserve as contingency
  5. Be self-disciplined and make sure you use the loan sensibly and stay within the rules.   Do not take liberties.  If you’re a Limited Company (not a sole trader) remember the business owns the loan not the individual directors.
  6. You can take cash from the business if it is needed and it is part of the survival of the business. 
    • But, you cannot use the loan to pay additional dividends.  Dividends are paid from profits and a loan is not a profit.
    • You can use it to pay normal monthly dividends that have been stopped or reduced because of the virus.
    • Can be used to pay salaries that have been stopped or reduced because of the virus.

If you require further information please contact us.  As Accountants, Tax Compute will always advise what is best for the client.   Give us a call and we can offer you a free consultation and advice on what is best.  

Contact for more information

Jon GUNNING

Cheltenham Office

jon@taxcompute.co.uk

Tel 01242 241998