How the bounce back loan is helping small businesses

April 29, 2020

The government has introduced a new form of aid for SMEs; the Bounce Back Loan Scheme (BBLS). This scheme is part of the larger package the government is deploying to help SMEs during the coronavirus pandemic.

At Pomelo Pay, we want small businesses to know of all the help available, in order to take the right course of action. In this article we’ll be covering what the BBL scheme is, whether your business is eligible and how to apply.

What is the BBLS?

The BBL scheme was announced by the chancellor on the 27th of April with the purpose of helping small businesses and sole traders that are losing revenue due to the covid-19 outbreak.

The scheme allows small to medium businesses to borrow between £2,000 up to 25% of their turnover, with a maximum of £50,000. The government is guaranteeing 100% of the loan, with no fees or interest to be paid for the first 12 months.

After the first 12 months, the interest rate is set at 2.5% per year. The entire loan is for a maximum of six years, although SMEs can repay the total amount early with no penalty.

The loan has been put in place for business, not for personal use – but sole traders can also apply. The entire programme itself will run until the 4th of November 2020, although it may be extended for longer.

Are you eligible?

You are eligible for the BBLS scheme if your business:

  • Started trading before the 1st of March 2020
  • Is based and registered in the UK
  • Has been adversely impacted by covid-19
  • Is able to declare that it wasn’t a “business with difficulty” or insolvent on the 31st of December 2019. If you aren’t, you’ll need to complete an additional form.

You won’t be able to apply if your business already received funds through other schemes such as the Coronavirus Business Interruption Loan Scheme and Covid-19 Corporate Financing Facility. However, if you received a loan of £50,000 or under, you can transfer that loan over to the Bounce Back Loan Scheme through your lender.

Businesses can apply from any sector except:

  • Public sector bodies
  • State funded primary and secondary schools
  • Banks, insurers and reinsurers

How to apply

Similar to the other schemes offered by the government, you can access BBLS through the 11 accredited British Business Bank accredited lenders and partners.

If you are already a customer of one of those banks, try applying through that same bank for BBLS. Although you will have access to loans from other banks, the loan process can take a little longer for new customers as many lenders are favouring current customers.

For the process, you’ll need to fill in a short application form online and declare that you are eligible and will be able to pay back the loan. This form should be available through your lender’s coronavirus support page, which will have more information about the loan.

The bank will then put you through a process to determine the best type of loan to offer you (they may consider you for other loan types such as invoice financing). You will be responsible for paying the entire loan borrowed.

You’ll need to insert general information including your business name, address, bank account details, business turnover and contact details. You’ll then need to fill out some additional questions about the business as well as some declarations.

If you’re a new customer, you may need to answer some additional questions that are commonly asked when opening a new business bank account. You won’t be asked about future predictions for your company.

If you are already applying for other loans, you can withdraw those loans and apply to the BBLS. If one lender turns you down, you can apply to others. In order to make the process as smooth as possible, consider using a broker to help you determine the best type of financing for what you need.

For sole traders, the process is similar. You will need your 2018/19 tax return and calculation – this is a requirement for anti-money laundering and fraud checks.

If you traded after 2019, you’ll need to provide your unique taxpayer reference as well as your VAT (if your turnover is more than £85,000). For businesses that have been established in 2019, you can use the estimated turnover of that year to apply.

When you apply, banks will have to do fraud and credit checks as done per usual when applying for a loan. The banks will only be doing soft credit checks, so they should not impact your overall credit score. Your overall credit history won’t have an impact on your interest rate or the total amount allowed to borrow.

What makes this scheme different?

The main differentiator of the BBLS with other schemes is that the loan amount is much smaller. The Coronavirus Business Interruption Loan Scheme (CBILS) offers loans of up to £5 million and the Large CBILS offers up to £25 million. Instead, the Bounce Back Loan Scheme has been specially designed to support small businesses.

Because it’s much smaller, banks don’t need to go through the usual complex processes in order to issue the loan. Small businesses and sole traders can apply and receive their money within days, and won’t need to give evidence that they will be viable in the future. The fact that the interest rate has been set at 2.5% has also streamlined the process, since banks no longer need to do risk-based loan pricing.

The BBLS has already had a large amount of success, with small businesses securing over £2 billion within the first 24 hours of its launch. The number of lenders being approved for the loan is also increasing over time, with banks such as Starling bank having already issued over £50 million to small businesses.

If you are a small business and are struggling to receive a loan from the other government schemes or need money urgently, the BBLS loan is definitely worth applying for. Check to see if your bank is offering the loan, and make sure to keep up to date with the government news and announcements for any new initiatives to help small businesses.

At Pomelo Pay, we’re working hard to help small businesses and sole traders during these difficult times by offering the right tools to accept payments online.