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Small businesses make up over 90 percent of Western economies, employing millions of people every year and generating significant revenue across industries.
However, the coronavirus pandemic has changed things rapidly, especially in the UK. Many SME business owners have had no other option than to furlough employees or drastically reduce their working hours, while others have officially closed their doors, unable to gather the resources necessary to stay afloat.
To safeguard business activities across the country, UK chancellor Rishi Sunak has announced a new Bounce Back Loan scheme, through which business owners can receive some funding during the pandemic.
He said: “These loans will help [business owners] bounce back from this crisis, getting money fast. […] It’s vital this speedy progress continues in the days and weeks ahead.”
This new scheme comes after the previous emergency loan system issued by the government – the Coronavirus Business Interruption Loan Scheme (CBILS) – was met with harsh criticism, as business owners experienced technical difficulties in the application process and delays in receiving the money once their loan was approved.
Here’s everything you need to know about the scheme, including how to apply and what to use the funds for.
How do I know if I can apply?
According to government guidelines, businesses of any size can get access the loans, however, this does not include banks, insurance companies, public sector groups and state-funded primary and secondary schools.
If your business doesn’t reside within the excluded categories, you must meet the following criteria to be eligible for the loans:
Your activity wasn’t in financial trouble on December 31 2019
You were trading before March 1 2020
Over half of your income as a business owner comes from trading
Your business has been negatively affected by lockdown measures
Your business isn’t already bankrupt or in liquidation
You haven’t already been approved for the CBILS, unless you intend to use Bounce Back Loans to pay back the other loan
How much money will I get?
If you get approved, you’ll received 100 percent government-backed loans worth up to £50,000, capped at 25 percent at an interest rate of 2.5 percent. The first 12 months are payment and interest free.
What can I use the money for?
Depending on what you trade in, you’ll be able to use the loans to pay off different expenses. Examples include paying staff salaries, paying off existing loans (such as the CBILS), paying suppliers/distributors, paying bills (such as utility bills) and maintaining a healthy cashflow.
How can I apply?
There are currently 11 lenders participating in the Bounce Back scheme, which you can find on the government’s website.
You should apply through the bank you opened your business’ account with. You’ll be required to fill in a short online form which will collect details about your business such as taxes and turnover rates, as well as specific information on how the lockdown has affected your trading activities. Background checks will also be conducted, such as Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
The scheme will be available until November 4 2020.
A key thing to remember is that you’ll have to repay these loans during or after the crisis, so do take that into consideration.
As Stephen Joes, chief executive of banking industry organization UK Finance, said: “While businesses only need to fill in a simple form online to apply, it’s important to remember that this type of finance is debt, not a government or bank grant, and will need to be repaid by the borrower over the six-year term of the loan.
“All businesses should consider carefully their repayment obligations before completing a bounce back loan application. Under the terms of the scheme lenders are required to seek to recover any unpaid interest and principal on bounce back loans from borrowers.”
Linda was a Content Writer at TopMBA, creating content about students, courses, universities and businesses. She recently graduated in Journalism & Creative Writing with Politics and International Relations, and now enjoys writing for a student audience.
Bounce Back Loans: Everything You Need to Know for Your Small Business
By Linda Mohamed
Updated May 21, 2020 Updated May 21, 2020Small businesses make up over 90 percent of Western economies, employing millions of people every year and generating significant revenue across industries.
However, the coronavirus pandemic has changed things rapidly, especially in the UK. Many SME business owners have had no other option than to furlough employees or drastically reduce their working hours, while others have officially closed their doors, unable to gather the resources necessary to stay afloat.
To safeguard business activities across the country, UK chancellor Rishi Sunak has announced a new Bounce Back Loan scheme, through which business owners can receive some funding during the pandemic.
He said: “These loans will help [business owners] bounce back from this crisis, getting money fast. […] It’s vital this speedy progress continues in the days and weeks ahead.”
This new scheme comes after the previous emergency loan system issued by the government – the Coronavirus Business Interruption Loan Scheme (CBILS) – was met with harsh criticism, as business owners experienced technical difficulties in the application process and delays in receiving the money once their loan was approved.
Here’s everything you need to know about the scheme, including how to apply and what to use the funds for.
How do I know if I can apply?
According to government guidelines, businesses of any size can get access the loans, however, this does not include banks, insurance companies, public sector groups and state-funded primary and secondary schools.
If your business doesn’t reside within the excluded categories, you must meet the following criteria to be eligible for the loans:
How much money will I get?
If you get approved, you’ll received 100 percent government-backed loans worth up to £50,000, capped at 25 percent at an interest rate of 2.5 percent. The first 12 months are payment and interest free.
What can I use the money for?
Depending on what you trade in, you’ll be able to use the loans to pay off different expenses. Examples include paying staff salaries, paying off existing loans (such as the CBILS), paying suppliers/distributors, paying bills (such as utility bills) and maintaining a healthy cashflow.
How can I apply?
There are currently 11 lenders participating in the Bounce Back scheme, which you can find on the government’s website.
You should apply through the bank you opened your business’ account with. You’ll be required to fill in a short online form which will collect details about your business such as taxes and turnover rates, as well as specific information on how the lockdown has affected your trading activities. Background checks will also be conducted, such as Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
The scheme will be available until November 4 2020.
A key thing to remember is that you’ll have to repay these loans during or after the crisis, so do take that into consideration.
As Stephen Joes, chief executive of banking industry organization UK Finance, said: “While businesses only need to fill in a simple form online to apply, it’s important to remember that this type of finance is debt, not a government or bank grant, and will need to be repaid by the borrower over the six-year term of the loan.
“All businesses should consider carefully their repayment obligations before completing a bounce back loan application. Under the terms of the scheme lenders are required to seek to recover any unpaid interest and principal on bounce back loans from borrowers.”
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This article was originally published in May 2020 .
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Linda was a Content Writer at TopMBA, creating content about students, courses, universities and businesses. She recently graduated in Journalism & Creative Writing with Politics and International Relations, and now enjoys writing for a student audience.
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