Bounce Back Loans – best thing since sliced bread?

14th May 2020

Okay, so originally the loans the government were backing for small businesses to help them through the COVID crisis were called CBILS (Corona Business Interruption Loan Scheme – catchy, eh?)

The whole experience was pretty horrendous.  At a time of crisis and uncertainty, the banks were moving very slowly making people jump through ridiculous hoops to get help. I mean, seriously – what’s the point in asking for a cash flow forecast when nobody knows when they’ll be able to start trading normally again?

The problem was that the government was only backing 80% of the loan, so the banks still had some skin in the game.

Then our Chancellor stepped in, waved his magic want, and created ‘Bounce Back Loans.’  Suddenly the government was backing the loans 100%, and the money started flowing very quickly indeed.  48 hours from application to the money ending up in your bank account.  Only a few questions, and no documentation asked for (apart from a copy of your tax return if you’re applying as a sole trader who uses a personal bank account for business – and even then, only some banks are asking for it.) 

There are a few conditions attached – the loan is limited to £50,000 or 20% of your recent annual income, whichever is smaller.  Your business had to be viable before Corona, but adversely affected by Corona etc.  But let’s just say that nobody’s working that hard to check the applications against the criteria.

So, good or bad?  Well, let’s break it down.

On the plus side:

  • No repayments for the first 12 months
  • Government pays the interest for the first 12 months
  • Low interest rate
  • No personal guarantee (so if your business fails, and you’ve behaved properly, the bank won’t come after your personal assets.)

But then again:

  • It’s still a loan people. It’s up to £50k sitting on your balance sheet that needs to be paid back
  • When repayment start, you’re looking at a monthly cash outgoing of between £800-£900

So should you get one?

I’d say yes, but only if:

  • you need it to get through the current crisis – it’s do or die for your business at this point; OR
  • you don’t need it at present, but can use it for growth projects that you have in mind – i.e. you can make the money work hard and as a result you’ll be in a good position once the payments become due

Otherwise, and if you feel you’d be tempted to just squander the money, it might be an idea to leave it.  What looks like a dream come true now could turn into a nightmare in a year’s time.