Bounce Back Loan Scheme (BBLS) was launched because it was recognized that small companies and businesses would be affected badly due to the pandemic. They need funding, and BBLS is the answer. The lockdown has severely affected many companies on every scale. While big businesses can get funding from elsewhere, small businesses have limited options. BBLS is one of those options. Let us discuss bounce back loans in detail.
Bounce back loans working
BBLS is a different scheme from the Coronavirus Business Interruption Loan Scheme (CBILS). CBILS is used for massive amounts, and the state does not guarantee it. However, if you have already applied for CBILS, you can still switch to BBLS. Bounce back loans operate under the ‘pay as your grow’ scheme. Under this, borrowers have an option to increase their loan term, which means more flexibility. Businesses also have the offer of payment holidays in which they make interest-only payments.
Some important features and updates
- The application deadline is the end of November 2020. It was 4 November earlier but has been extended till the end of the month.
- The borrowing limit lies between £2000 to £50,000. However, the sum is capped at 25% of the business turnover.
- For the first year, there will be no interest on the loans; nor any repayments will have to be made.
- After one year is complete, banks will be liable to charge an interest rate of 2.5%. A notable fact is that this rate is much cheaper than the average personal loan.
- There is a provision of paying the loan early without getting penalized. Some banks have the provision of part-repaying or overpaying.
- The loans have a term of ten years. This means, for one year, you won’t pay any interest, and for the remaining period, the rate is only 2.5%. Earlier, the loans were set to last for only six years. But the term was increased to ten years. This would have an impact on monthly repayments and could cut them in half. However, this will lead to higher interest. But there is a provision of repaying at any time you like without incurring a fee. That makes you really flexible with your money. You should know that as soon as you pay back the amount, the less interest you have to pay. But if you are in a position where you cannot pay back bounce back loan, you still have ten long years.
- There is the facility of payment holidays and interest-only terms too. They last up to 6 months. For a temporary period of time, you can switch to interest-only repayments for a total of three times. The interest-only period can last not more than six months. Only one repayment holiday is available to you. During this time, you can pause repayments for a period of six months. This option will only be available to you once you have successfully made six payments. Taking a payment holiday will result in paying more interest.
- Bounce back loans are unsecured. This might sound like a bad thing, but it isn’t. When a loan is secure, it includes mortgages in which the lender has the power to take your home if you are unable to pay. The burden of loan security does not fall on you, but it falls on the government. Therefore, it is really tough for the creditor to seize your personal assets.
- Loans under BBLS will not have an impact on your eligibility if you apply for other government schemes. Along BBLS, you can still receive income support grants and universal credit.
- You can finance your existing loans with the help of bounce back loans. There are no restrictions on that.
Eligibility for BBLS
- To be able to apply for a bounce-back loan, your business should not have started after 1 March 2020. It should be running, and if there are problems, the reason should only be Coronavirus and nothing else.
- Credit ratings are not a factor for the application. This is an inclusive scheme, and many people will be able to benefit.
- A business is required to get a bounce-back loan. However, a business bank account is not necessary. Some banks do need that, but some don’t.
You can use bounce back loans as your own income
You can use bounce back loans to supplement your own income. There is no such rule or law that stops you from doing this. There are no barriers as to how these loans are to be spent. However, they should be under the category of working investment or capital. These include utility bills like electricity bills, wages, and supplies. Your income does come under wages, so that is pretty clear. Bounce back loans are an excellent way for struggling businesses to pick up where they left and get back there.