Many small businesses have been badly affected by COVID-19. These businesses have been able to apply for 100% Government-backed bank loans worth up to £50,000, and with no interest applied or repayments due in the first 12 months.
Over a million loans have already been granted.
In his recent statement, the Chancellor announced further changes to provide businesses with even greater repayment flexibility.
What are Bounce Back Loans?
The Bounce Back Loan scheme was introduced earlier in the year due to many small businesses being unable to obtain loan finance quickly enough to get them through the COVID-19 crisis.
Here are the key features of the loans:
- Application deadline extended to 30 November. The deadline for applications was originally 4 November. In his recent statement, the Chancellor extended the deadline to 30 November.
- You can borrow between £2,000 and £50,000. However, the loan amount is capped at 25% of your business turnover.
- You won’t have to pay any interest or make any loan repayments for the first 12 months.
- After 12 months, annual interest will be charged at 2.5%.
- You can repay the loan early, without incurring early repayment penalties.
- The repayment term can now be up to 10 years (see below for more on the ‘Pay as you Grow’ scheme).
- The loans are unsecured. This means you don’t have to put up your assets as collateral. The loans are backed by the state.
- Your business must have been established by 1 March 2020 and must still be trading as a going concern.
- Your credit ratings shouldn’t affect your eligibility for a loan.
- You don’t need to prove that your business is viable with accounts and financial forecasts.
- The application process is quick and easy. You should apply directly to a bank. The application involves completing a short on-line form. Most small businesses with a business bank account would apply to their current business bank.
- The loan does not affect your eligibility for other Government COVID-19 support, such as the Self-Employed Income Support Scheme. You can apply for both. And you may also be eligible for Universal Credit.
The new ‘Pay as you Grow’ scheme provides repayment flexibility
In his recent statement, the Chancellor announced a ‘Pay as you Grow’ scheme to provide businesses with a more flexible system for repaying Bounce Back Loans. This means:
- Businesses have the option to extend their Bounce Back Loan repayment term from 6 to 10 years. This will almost halve the average monthly repayment.
- Businesses who are struggling can choose to temporarily make interest only payments for period of up to 6 months. This option can only be used up to 3 times.
- For businesses who get into very significant problems, they can opt to suspend payments completely for up to 6 months. This option can only be used once, after having made 6 payments.
No business taking up this new flexible payment system should see their credit rating affected.
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