The emergence of the COVID-19 coronavirus and its growth into a full-blown pandemic impacted multiple industry segments deeply. The negative consequences have become even more severe after going through multiple waves of new and more contagious strains. As a result, many SMEs (small and medium-sized enterprises) and individuals have been put under additional financial pressure.
Business owners are encouraged to seek advice from a specialised accountant firm to ease the burden on their organisations and explore potential avenues for governmental support. The experts must be well-versed in both the national as well as local laws and regulations.
They should also have experience with the specific type of business organisation, such as a professional contractor accountant in London. A specialist contractor accountants firm can assist with meeting tax requirements, improve the efficiency of the business operation, and help it apply for suitable government grants and other forms of financial support.
UK’s Bounce Back Loan Scheme (BBLS)
The UK implemented two different programs to help businesses struggling due to the pandemic. The Government’s main initiative was the Coronavirus Business Interruption Loan Scheme (CBILS), but it ran into multiple problems. So, a second financial lifeline was put in place for small businesses.
Known as the Bounce Back Loan Scheme, it offered vastly more beneficial terms and proved to be far more popular. Before it stopped accepting new applicants on 31 March 2021, approximately 1.4 million businesses were able to take out nearly £45 billion in bounce back loans.
BBLS Details
What made the Bounce Back Loan Scheme so attractive was its versatility. The program offered loans between £2,000 and £50,000, capped at 25% of the organisation’s total turnover. Unlike CBILS, bounce back loans are unsecured.
While at first this may create an impression of something negative, it is a significant benefit in practice. Indeed, the borrower won’t have to secure the loan via another asset such as a mortgage for a specific property that the lender would take if the loan is not repaid.
Interest on the loans stands at a fixed 2.5% annually, with the first 12 months not incurring interest, making them far more accessible and cheaper than personal loans. Businesses were also allowed to ‘top up’ their loans if the maximum allowed sum was not taken at first. The minimum top-up amount was set at £1,000.
The funds acquired via such a loan can be used on virtually anything, even as direct income support or to refinance an existing loan that has far worse repayment terms. However, there are two major restrictions.
First, bounce back loans can be used to pay salaries but not to increase them. Furthermore, the loans cannot be utilised as dividend payments unless the organisation has generated sufficient profit but doesn’t currently have the necessary cash on hand to make the payments.
Repayment Options
The Bounce Back Loan Scheme provides borrowers with significant flexibility when it comes to the repayment of the funds.
- First 12-months are free – Borrowers will not have to make any repayments, and no interest will be charged for the first 12 months of the loan.
- 6 years with potential extension to 10 – Initially, bounce back loans were set to be repaid within 6 years, but the Government later added the option to push that period to 10 years. While doing so will drastically lower the amount of the monthly payments, it will also result in businesses ultimately paying more in interest.
- Early repayment without fees – the bounce back scheme allows borrowers to repay the remaining amount at any time without being charged any additional fees. Some banks and lenders even allow for part-repayment or overpay.
- Repayment holiday – Borrowers can request a payment holiday where all repayments will be paused for a maximum of 6 months. This option is available only once during the length of the loan but can be taken immediately after the initial 12-month free-repayment period. In this case, the first repayment businesses will need to make will be 18 months after the date the loan was taken.
- Interest-only periods – Throughout the loan length, borrowers may request to have up to 3 periods of interest-only payments. Each interest-only period can last up to 6 months.
It should be noted that when it comes to top-ups, they do not come with a separate repayment and interest-free period. The countdown is still active from the date the loan was originally taken, and repayment will need to start when the 12-months are over unless the borrower takes advantage of one of the several available options to delay payment.
