‘Better’ Bounce Back Loans! Find out more here

As we’re coming up to Valentines, we’ve got a topical post here! If you love money that is!!

We’ve covered business bounce back loans with you before, but there’s been some developments which means it remains a clear leader in the survival of businesses. Especially those who have not qualified for any other scheme. Such as directors of limited companies who pay themselves mostly by dividend usually, and those who started their self employment after April 2019.

Main changes :

the deadline for applications has now been extended from end of January til the end of March 2021.
you can also delay by six months the date you have to start repaying the loan, if you apply to your lender. It was 12 months from when you took out the loan but is now 18 months. You will however accumulate the interest fees (2.5%) from the twelve month point though.
You can also top up the loan if you didn’t take out the maximum before. (As a reminder : the loans are for amounts between £2,000 and £50,000 and are capped at 25% of your turnover)
They were originally meant to be for up to 6 years, but have been extended to 10 years.
You can top up the loan but it has to be with the same lender you already have the loan with.
The repayment period will be the same for the topped up amount as it was for the original loan. So if the loan was taken out June 1st 2020, and the top up loan end of Feb 2021, you will start paying interest on the total borrowed from 31st May 2021. However, if you’re struggling, this is still a good option.
If your fortunes change within the next few years, you can pay off the loan early, ie before the ten year mark, without any penalty.

The bounce back loans have been very popular and generated a lot of interest and questions.

We’ve found a source for very helpful questions and answers in the Money Saving Expert site. So we hope they don’t mind us sharing them with you. To visit their site click here

Your bounce back questions answered by the Treasury

We asked on Twitter and Facebook for your questions and concerns, and we’ve put them to the Treasury. Here are its answers (we’ve not included those we’ve already covered above). If you have questions not covered here, please let us know and we’ll try to find the answers to include below.

Q. Are there any strict rules on what the money must be used for? Can it be used to support the income of sole traders or limited company directors? (Question asked by MSE.) A. “Our Bounce Back Loan Scheme will ensure that small firms who need vital cash injections to keep operating can get finance with a 100% Government-backed guarantee in a matter of days, with thousands of loans approved already today. The loan can be spent on investment or working capital for the business – including bills, running costs and wages.”

Q. What if I stop trading after coronavirus, as my business is no longer feasible and running at a loss – will the bounce back loan have to be repaid if the business is not operating in 2021? What is the liability? A. “All businesses that take out a bounce back loan are responsible for repaying any facility they may take out. No business will be required to make a repayment during the first 12 months of the loan, giving them time to get back on their feet.”

Q. Will loan repayment amounts be confirmed at the time of application? A. “Yes.”

Q. Is there a criterion regarding minimum revenue and profit threshold? A. “You may only apply for a loan of up to 25% of your turnover, but there is no constraint on the size of business that can apply for a loan.”

Q. Can the loan be paid as a dividend if the business has retained profits but is cash poor? A. “Yes.”

Q. I have a small limited company that has taken out a bank loan at a high APR rate which I have to stand as a guarantor. Can I apply for a bounce back loan for the same amount to pay off the bank? A. “Yes.”

Q. How long will it take for the loans to be paid from point of application? A. “If you apply to a lender with whom you have an existing relationship as a business customer, lenders will endeavour to ensure you receive the funds the following day. If you are not a business customer or apply to a different provider, this process may take more time.”

Q. I’m an employed part-time hairdresser on furlough, but also have a mobile hairdressing business, which I operate as a sole trader. Am I eligible for the loan? A. “Yes.”

Q. Is there a date restriction on limited companies? I switched from sole trader to limited company on 9 March. I’m basically stuck in the middle of everything. A. “If you can verify that you were a sole trader before 1 March and show that your business is essentially the same as the one being carried out then, you will be able to apply.”

Q. Would bounce back loans be accessible for those who only went self-employed in September? A. “Yes, provided that they can demonstrate they were established on [or before] 1 March 2020, have been adversely affected by Covid-19, are still in business at the date of the application and more than 50% of their business’s income is derived from trading activity.”

Q. Are ‘PSCs’ (people of significant control) excluded from bounce back loans? A. “No.”

Q. Are limited company directors eligible for a bounce back loan? A. “Yes, if they are a sole director and applying on behalf of their business. All applications must be made by the business and the loan must be used wholly for business purposes, not personal purposes.”

Q. What happens if I’m struggling to repay the bounce back loan? (Answer provided by the state-owned economic development bank, the British Business Bank.) A. “You should talk to the lender if you are experiencing financial difficulties and they will have standard processes in place to support customers in those circumstances.

“Lenders are not permitted to require personal guarantees for the Bounce Back Loan Scheme.

“For sole traders or small partnerships, who often risk their personal assets when borrowing, the terms of the Bounce Back Loan Scheme mean no recovery action can be taken over a principal private residence or a primary personal vehicle.”

As ever, f you’ve got any questions for us please email David@theaccountancypractice.com or phone 01763 257882.

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