The bounce back loan scheme was launched last week as an additional measure to help small businesses struggling because of coronavirus. Specifically, bounce back loans have been introduced to help those who don't qualify for the Job Retention Scheme, e.g. self-employed directors of small companies or those who started working for themselves too late to qualify. So, how will these loans work and who is eligible to apply for them?
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Am I eligible for a bounce back loan?
If you own a business that was trading before 1 March 2020, then yes. The business must still be technically in operation (any suspension of trade due to coronavirus does not count), and your cash flow problems must be due to Covid-19.
You are still eligible for a bounce back loan if you've applied for other government relief schemes, e.g. the Job Retention Scheme and/or a small business grant. The schemes aren't mutually exclusive.
You don't need a business bank account to qualify, which makes it a good option for self-employed freelance workers.
And – unlike with the small business grant – businesses that earn over £50,000 are also still eligible.
How will the bounce back loan work?
In essence, this is a government-backed unsecured personal loan – which means that it's a loan that hasn't been backed up by your home or business. The loan application has been simplified in this case, so that people can get one regardless of their current credit score: you will need to fill out a simple application form online that only contains seven questions about your current circumstances.
The repayment period for these loans will be six years, with the first year interest free, and an interest of 2.5 per cent charged thereafter. Early repayments will not be penalised, giving this loan a flexibility that some personal loans lack.
How much can I get?
Between £2,000 and £50,000, up to 25 per cent of the company turnover. In theory, you will have the money in your account within a few days. Do bear in mind that how quickly you actually get the money will depend on your bank, as some of them report being inundated with applications.
Is there a cap on how many businesses can apply?
No, there is no limit on the number of companies and people who can apply, despite some banks' concern about the number of people applying (over 75,000 applied on the first day). As this is a government backed scheme, you should get the loan no matter how many others have applied – although watch this space for any new developments.
Is a bounce back loan a good idea?
Yes, if you're one of the business owners/self-employed people who have fallen through the cracks of other government support schemes. The bounce back loan has more generous terms than comparable personal loan products and could provide an immediate solution to a dire cash flow situation.
Of course, as with all other loans, you will need to think carefully about how much you're borrowing and how you will repay the loan. Only apply if you're confident that your profits will be able to cover the loan repayments.
- Bear in mind that you may still be able to apply for Universal Credit as well as the loan; find out how to apply for Universal Credit in our guide