Claiming funds from the Bounce Back Loan Scheme

The Government provides banks with a 100% guarantee for the Bounce Back Loan and pay any fees and interest for the first 12 months. Businesses do not have to make repayments during the first 12 months. The online application process is designed to be straightforward and, with a very attractive interest rate of 2.5%, these loans are generating a lot of interest from businesses struggling with their cashflow during these difficult times. 

Banks do not have to assess affordability or viability while the borrower will have to self-declare the reason why it is requesting a loan. It is important to note that the loans will not be subject to many of the usual consumer protections that apply to business lending, while borrowers will not have the benefit of protection and remedies that would otherwise be available under the Consumer Credit Act. 

The British Business Bank (‘BBB’) has advised in its FAQs that: “The business must confirm to the lender that the loan will only be used to provide an economic benefit to the business, for example providing working capital, and not for personal purposes.”

Key points of the Bounce Back Loan Scheme

• Loans range from £2,000 up to 25% of a business’ turnover. The maximum loan amount is £50,000. 
• The scheme provides the lender with a full (100%), Government-backed guarantee against the outstanding balance of the finance (both capital and interest). 
• The borrower remains 100% liable for the debt. 
• The Government will make a Business Interruption Payment (BIP) to cover the first 12 months of interest payments. 
• The borrower does not have to make any repayments for the first 12 months. 
• The interest rate for the facility is set at 2.5% per annum, meaning businesses will all benefit from the same, affordable rate of interest. 
• The length of the loan is six years, but early repayment is allowed, without early repayment fees. 
• Before the first repayment is due, the lender will contact the borrower to discuss:
  * extending ther term of the loan to 10 years
  * moving to interest-only for six months (available three times)
  * pausing repayments for six months if the borrower has already made six repayments (available once)
• You will not be eligible for a BBLS loan if you have already obtained a loan through the Coronavirus Business Interruption Loan Scheme, unless that loan will be refinanced in full by the Bounce Back Loan Scheme.
• Lenders are not permitted to take personal guarantees or take recovery action over a borrower’s personal assets (such as their main home or personal vehicle). 
• From 10th November, those businesses that already have a Bounce Back Loan, but borrowed less than they were entitled to, can, top up their existing loan to their maximum amount. Top ups must be requested by 31st January 2021.

Is my business eligible for a Bounce Back Loan?

To be eligible the business must be able to self-declare to the lender that it: 

• has been impacted by the coronavirus pandemic 
• was not a business in difficulty (see below) at 31st December 2019
• is engaged in trading or commercial activity in the UK and was established by 1st March 2020 
• is not using the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the Bank of England’s Covid Corporate Financing Facility Scheme (CCFF), unless the Bounce Back Loan will refinance the whole of the CBILS, CLBILS or CCFF facility 
• is not in bankruptcy or liquidation or undergoing debt restructuring at the time it submits its application for finance 
• derives more than 50% of its income from its trading activity (this requirement does not apply to charities or further-education colleges) 
• is not in a restricted sector (see here) 

What is a ‘business in difficulty’?

A business is considered in difficulty if it meets any one of the following criteria on 31st December 2019: 

• Individuals or companies that have entered into collective insolvency proceedings 
• Limited companies which have accumulated losses greater than half of their share capital in their last annual accounts (this does not apply to small or medium-sized enterprises (SMEs) less than three years old) 
• Partnerships, limited partnerships or unlimited liability companies which have accumulated losses greater than half of their capital in their latest annual accounts (this does not apply to SMEs less than three years old)
• Where the undertaking has received rescue aid and has not yet reimbursed the loan or terminated the guarantee, or has received restructuring aid and is still subject to a restructuring plan
• A company which is not an SME where, for each of the last two accounting years: i) your book debt to equity ratio has been greater than 7.5; and ii) your EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) interest coverage ratio has been below 1.0 

How to apply and further information 

Applications to use the scheme were due to close at the end of January 2021. However, on 17th December it was announced that the application window would be extended to 31st March 2021.

It was also announced that firms would be able to ‘top up’ existing Bounce Back Loans if they need additional funding.

Where businesses have borrowed less than their maximum permitted facility (less than 25% of their turnover), they will be allowed to top-up their existing loan. 

The British Business Bank advise that, in the first instance, you should approach your own bank. You may also consider approaching other lenders if you are unable to access the finance you require. 

Details of accredited lenders may be found here. 

Details of how to apply may be found here. 

See the British Business Bank BBLS FAQs for more information. 

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Date published 15 May 2020 | Last updated 18 Dec 2020

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.