Why Every Small Business Should Consider a Bounce Loan
It’s not too late to get a rebound loan. Hundreds of thousands of small and medium-sized businesses have already taken advantage of this aspect of the Covid-19 government’s financial support – but if you’re still not sure whether to apply, it’s definitely worth considering taking the plunge.
Bounce loans allow businesses to borrow up to £ 50,000 from any of the banks participating in the initiative. The money is interest free and free for the first year. Thereafter, interest charges are capped at a cost of 2.5% per annum. The loans are repayable over six years, but you can prepay without penalty at any time.
In other words, it’s remarkably cheap and flexible financing – certainly more affordable miles than anything you could get under normal circumstances from a private sector lender. Bounce loans are also a much better deal than the government’s Coronavirus Business Interruption Loan (CBILS) program, although it does allow for larger advances.
The money has to be paid back at the end, of course. The government guarantees 80% of every loan to the bank by making it in the event of default (one reason for the low interest rate), but you are responsible for the repayments. That said, rebound loans do not require any collateral or personal collateral.
For all these reasons, bounce loans could be extremely useful to a large number of businesses. Some 900,000 loans have already been granted, but many companies have yet to apply.
It is important to note that you can apply for a rebound loan whether your business is a limited liability company or you are an individual entrepreneur. You just need to be UK based and have a business established before March 1st.
Program rules state that your business must have been adversely affected by Covid-19, but in practice almost all businesses will be able to report at least some negative impacts. This rule does not mean that only companies forced to go out of business during the lockdown period can apply, nor that your income has completely disappeared. You just need to have seen negative effects.
The bounce loan money can be used for just about any purpose. If you need it to pay your wages, including yours, that’s an acceptable use of the money. You can also use it to pay off any existing financing you may have, in which case you are effectively refinancing at a more affordable interest rate, reducing the costs your business faces. This includes any debt you had before the virus hit, but also funding for CBILS if you’ve already fixed it; since it is more expensive, converting this debt into a bounce loan, assuming it is less than £ 50,000, is a good idea. Note, however, that you are not allowed to have both a CBILS loan and a bounce loan.
Even if you don’t need the money right away, consider taking out a bounce loan. Many businesses borrow simply to give themselves a financial cushion. Very few companies have a clear idea of what the next six months will bring, so having a safety net to fall back on might be a very smart precaution. If it turns out that you don’t need to withdraw the money, you can simply pay it back within 12 months at no additional cost to worry about.