Should you consider applying for a Bounce Back Loan?
Sole traders, is this something you should be applying for?
Please be aware, do not look at a BBL as a government grant or just extra cash, it must be considered and managed as a loan, as it rightly is. (clues in the name!)
If you just want extra cash, you’ll end up with less than you started off with.
However, if managed properly and used to clear existing debts, it may well be worth applying for.
While millions who work for themselves are covered by the Government’s income support scheme, huge swathes aren’t eligible and don’t get any help.
That includes those who started businesses after roughly September 2018, freelancers with only some self-employed work, those with profits over £50,000 and people who work for themselves via a limited company.
The bounce-back loans offer Small businesses struggling due to the coronavirus that may have been illegible for the current income support scheme’s (SEISS) a new 100% state-backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months.
Bounce back loans DON’T affect your eligibility for other Government personal support.
You can still apply for a bounce-back loan and get the self-employment income support grants, and you may still be eligible for universal credit.
Bounce back loans can be used to repay any existing finance.If you have existing finance costs associated with your business such as vehicle, plant, stock, credit cards etc.
It is worth considering using this loan to pay off existing finance, to give yourself a year-long payment and interest holiday, followed by reduced cost in the longer term.
The lack of repayments and interest in the first year makes these loans far more attractive for a struggling business or struggling business owner than normal finance.
If things improve within a year, you can clear the loan before there’s any actual cost – and if it takes longer and there is a cost, it’s pretty cheap
Here are the main points:
• You can borrow between £2,000 and £50,000. Though the amount is capped at 25% of your total turnover (usually for the calendar year 2019, or new businesses can estimate).
• No interest will be charged and no repayments will need to be made in the first 12 months.
• After 12 months, all banks will charge a fixed 2.5% annual interest. This is far cheaper than a typical personal loan.
• You can repay the loan early without penalty. Or with some banks, you can part-repay or overpay.
• The loans are set up to last for six years. So that’s a year interest-free and the rest at 2.5%. However, as you can repay at any time that gives you flexibility, of course, the sooner you repay once interest is charged, the smaller the overall cost. See how the loans are repaid.
• The loans are unsecured. While this sounds bad, it’s actually good. Secured loans include mortgages, where they can take your home if you don’t repay. Here you don’t give security (the Government does) so it’s far more difficult for them to take your assets if you can’t repay.
• Your business must have been established before 1 March 2020. It must also still be trading as a going concern (temporary cessation due to coronavirus doesn’t matter) at the point of application – and the reason for any issues must be due to coronavirus.
• Credit ratings (business or personal) won’t impact your eligibility – so most should be able to get these loans. You don’t need to prove the viability of your business and the application process is relatively straightforward.
• Bounce back loans DON’T affect your eligibility for other Government personal support. You can still apply for a bounce-back loan and get the self-employment income support grants, and you may still be eligible for universal credit.
• Bounce back loans can be used to repay any existing finance.
Thanks and a hat tip to Martin lewis and money-saving expert for providing a plethora of useful advice and insights.
Please contact me if you would like to discuss the viability of a BBL for your business.