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The Government’s Bounce Back Loans Explained

As the global pandemic continues to tighten its grip on economies and the finances of hundreds of millions of workers globally, the UK government has introduced another business support tool to help companies get through this difficult period. This is the government’s bounce back loans explained.

The Government’s Bounce Back Loans Explained – Background

The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000. The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

Terms

Many of the terms are listed above. but in addition, you can apply for a loan if your business:

  • is UK based
  • was established prior to 1 March 2020
  • has been adversely impacted by the coronavirus

If a business was defined as a business in difficulty at the end of 2019 you’ll need to confirm that you’re complying with additional state aid restrictions.

Not every business sector can apply. Those that cannot include banks, insurers and reinsurers (but not insurance brokers), any public-sector bodies and also state-funded primary and secondary schools. If a business has already taken on other state aid during these difficult times they again will not be eligible for this particular loan.

The Government’s Bounce Back Loans Explained – No Risk For Banks

The good thing about these loans for customers is that a good credit record and past history is not really that important, or it should not be. This is because the government guarantee all loans, so the banks will not find themselves out of pocket, should businesses struggle to make repayments. Therefore, the banks have little reason to decline applications. They are merely conduits for government cash.

Minimal Risk For Borrowers

And the risk for borrowers is just as minimal. The terms of this loan are the best you will ever see. Interest free for a year, with no repayments. That gives everyone time to get back on their feet. And even after that year expires, the interest rate is a mere 2.5%. You will not find better rates than that!

Availability

Every major bank is offering this loan, so there are few obstacles in your way should you wish to apply. The only caveat is if you are a sole trader who uses a personal account for your business. These loans must go into a business account. There is a way round this though. As far as i am aware, banks will allow you to set up a business account, which they term a feeder account. Then you can apply for a loan and have it paid into that, before transferring into your main account.

Take Them If You Have Debt

This may go against the intention of the loan, but so what? If your business is doing ok, but you have personal debt, then take out a loan. It is a no-brainer. Use it to pay off some debt.

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