Is a ‘Bounce Back Loan’ right for your business?

Richard Starkey takes a closer look at the latest initiative to get Britain’s businesses back on track…


As I’ve touched upon in previous blogs, there are certain business owners that have ‘fallen through the gaps’ of the government relief grants. For example, it could be that you're self-employed but don't qualify for the Self-Employment Income Support Scheme, or are a limited company director and draw most of your income in dividends. In response, the government have launched a Bounce Back Loan Scheme and, while it’s a loan and not a grant, it’s a very attractive incentive. 


At its simplest, it’s a 100% state-backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months. 


It’s worth noting before we go any further that the loan is separate from the Coronavirus Business Interruption Loan Scheme, which is for larger amounts (and subsequently for larger business) and not state backed – if you’ve already applied for one of these and would rather a Bounce Back Loan, you can switch to this scheme (more details on this TBC). 


How it works

You’ll be able to borrow any amount between £2,000 and £50,000 and it’s capped to 25% of your total turnover. The government has claimed that payments will be made swiftly – within 48 hours of a successful application – and there’s no need to supply a business plan or demonstrate that your business is viable. You do, however, need to declare that your business has been adversely affected by the coronavirus crisis.    


As mentioned earlier, no interest will be charged and no repayments will need to be made in the first 12 months. After that, your bank will charge a fixed 2.5% annual interest. This is far cheaper than a regular business (or even personal) loan and, there’s a strong argument to be had for using the Bounce Back Loan to pay off any other loans you may have. 


You’ll have six years to pay back the loans, and you can repay at any time with no penalty. 


What’s at risk

What’s particularly eye catching is that the loans are unsecured – or rather, they’re secured by the government – which, broadly speaking, means that if you default on the loan, you won’t lose your house. That said, it’s not impossible for the government to claim your assets and I would urge caution if you’re in any doubt about meeting your repayments. 


To qualify, your business must have been established before 1 March 2020 and it must have been ‘trading’ (i.e. actually sending out invoices for work rather than, say, a start-up solely using its investment capital).  In addition, it must also have been a viable business as of 31st December 2019. Your credit rating won’t impact your eligibility, although I understand that it will go on your business credit report.     


Is it right for you?
Some of our clients here at Business Control will be applying for this loan to help when furloughing comes to an end (let’s face it, the country can’t afford to continue such a scheme forever) to help with staff and operating costs. Can you use the money to top up your own wages? Yes, technically. What will the tax implications be of doing this? We’re in unchartered territory and guidance is unclear at this stage. Meanwhile, other business owners will be using the loan to invest in marketing and equipment for expansion – or at very least, to mitigate the effects of the coming recession. I can see very good arguments for both of these strategies. 

In addition, if you run a tight financial ship and can trust yourself, I can also see an argument for taking the loan, putting the money in the bank in case of emergency, and then paying it back after a year with no penalty and no charges.


Conversely – and as always – I wouldn’t recommend this loan to any business owner who knows in his or her heart that the business is unviable. It’s an unethical course of action and it’s only a ‘stay of execution’ after all.    


My bottom line 

Ultimately, this loan is a helping hand for struggling businesses. It has generous terms and it’s seemingly easy to apply for. Is it the key to survival for many businesses? I suspect it may be. Is it right for your situation? Well, it could be seen as a soft landing loan for when (or if) the downturn comes at the end of the furlough period. It could also be seen as a help to review and change the course of the business to optimise new markets. As a Business Control client, we’ll gladly listen to your thoughts and offer advice, but the decision is ultimately yours. If you feel ready to Bounce Back and take out the loan, here’s where you’ll find the information you need.


Don’t forget to check out the rest of our Accounting for COVID-19 blogs here, and please check back periodically to get the very latest insight and information from the Business Control team.

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