A Beginner’s Guide About What Is Bounce Back Loan?

If you are stuck in a scenario that is the reason to hinder or threaten your business growth, there are multiple ways to seek help to avoid it. One such example is the COVID-19 pandemic which affected the growth of business worldwide.

The unprecedented support package offered by the government turned out to be a great help for the shareholders and companies to ensure their survival in this hard time.

The Coronavirus Business Interruption Loan Scheme was criticised throughout the time which made the government introduce an alternative named as Bounce Back Loan Scheme. Wondering what is a bounce-back loan scheme?

In this blog, we have covered the introductory explanation of the bounce-back loan scheme and how is its usage beneficial for you.

What Is Bounce Back Loan?

As the name explains itself the bounce-back loan scheme aims to help businesses survive during challenging times. If the government impose some kind of restrictions on your business during times like COVID-19, you will seek help like a bounce-back loan scheme to carry out your business without any hindrance to the business growth. To resume trading in such a scenario, the government scheme allows to bounce back with the help it aims to offer swiftly.

Let’s take the example of an individual who is running a small business. The following are the key factors to consider:

• The bounce-back loan scheme allows businesses to have a loan that is 25% of the worth of the company’s turnover.
• The maximum limit of the bounce-back loan scheme is up to  £50,000.
• The first year of association with this scheme is aimed to be interest-free.
•  100% security is given to the business individuals by the government which is a factor in reducing the risk to the lenders.

Moreover, at the initial level, it was considered to grant the amount of the loan within 24 hours of applying. Later on, when it came to practicality, the lofty expectations to provide the loan amount swiftly failed to achieve.

What is the Use of Bounce Back Loan?

By now you must be wondering about the use of a bounce-back loan scheme. The criteria in this regard are quite broad when it comes to the use of BBLS. See the following listed points to get help with an understanding of how beneficial is the usage of bounce-back loans:

• You must aim to get the economic benefit for your business when you intend to opt for the bounce-back loan scheme.
• Improvement of your cash flow and the boosting of your work capital are the main targets to get the most out of BBLS.
• It is allowed that you pay the salaries to your employees with the use of loan money, however, you are bound not to make the increment adjusted with the same amount.
• The dividends amount can not be paid with the help of BBLS. It is only possible when there is proof of adequate profit on the balance sheet.
• There is a restriction on not using the bounce-back loan for any kind of personal use.

An Understanding of Your Liability

There is no doubt that the government claims to provide 100% security on the loan that you seek to take under the scheme of bounce-back loans. This makes the business person liable to ensure that when the monthly repayments begin, the 12-month grace period initially is paid back on time.

Because of the loan guarantee received by the government on the loan amount, the directors are set free and are not required to involve any factor such as a personal guarantee. Furthermore, the factor of a personal guarantee not required by the company director is a vital part of the scheme.

This is because it is extremely valuable when a company is already going into a downfall and unable to make a comeback or recover from the loss of pandemics. This is helpful in financial distress and when your business is trying to recover from a loss already.

In case a company subsequently enters the procedure of insolvency like creditors’ voluntary liquidation, there is no chance that the liability of repayments will be transferred to the company directors or the shareholders of the company.

Repayment of the bounce-back loan is still the sole liability of the company. This reduces the risk for a director for their assets or any chance of affecting the individual credit rating even when the company is not in a position of repayment.

The Bottom Line

We can sum up by saying that a bounce-back loan scheme is extremely helpful in a scenario of financial distress for a company. This will help the business to survive.

However, at times you may struggle to apply for the bounce back loan scheme and this could be because of the bank you are trading with. The solutions options are open for you still.

Moreover, to be eligible and apply successfully for the loan, you are required to take the process under serious consideration. In case you are unable to meet any of the above-discussed requirements, it will result in failing to get the loan amount.

You can even seek a professional’s help in this regard. We hope these few minutes of reading will help you to make the right business choices to survive in distress and for rapid business growth.

Disclaimer: The information about what is a bounce-back loan provided in this blog including text and graphics is general. It does not intend to disregard any of the professional advice.