I applied for a Bounce Back Loan – here’s how Bounce Back Loans might help your business too!
Bounce Back Loans are the new kid on the block for financial support during coronavirus, launched on Monday 4 May.
Rishi Sunak, the Chancellor, has been doling out money hand over fist since his first budget back in March. Mega loans for major companies, furlough payments for employees, lump sums for certain self-employed – haemorrhaging billions of pounds.
Trouble is, the banks have been reluctant to dole out cash to small businesses that might be crippled by coronavirus. Plus, many self-employed were screaming about the lack of support, if they fell through the cracks of the Self-Employment Income Support Scheme (SEISS). No joy from SEISS if you work via a limited company, only became self-employed since April 2019, get less than half your income from self-employment or earn more than £50,000 a year in profit.
But now Bounce Back Loans are riding to the rescue, designed to get cash to small businesses fast. In the four months since Bounce Back Loans were launched, more than a million small businesses have used them to borrower £38 billion.
Rishi Sunak announced changes to make Bounce Back Loans repayments more affordable in his ‘Winter Economy Plan’ on 24 September.
Borrowers will be be able to repay Bounce Back Loans over a long period of up to 10 years, rather than six.
Borrowers will also be able to move temporarily to interest-only payments for up to six months (an option that can be used up to 3 times), or pause repayments entirely for up to 6 months (can only do once, and after making at least six payments).
Plus, Rishi has extended the deadline for applications until the end of November.
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What is a Bounce Back Loan?
These loans are meant to help small businesses hit by coronavirus. I am not a fan of debt, but they look good.
- Borrow between £2,500 and £50,000.
- So not ‘bail out Virgin Atlantic’ huge sums here, but useful cash
- Maximum 25% of your annual turnover
- Turnover is the bigger figure, not the profits or losses after deducting costs used for SEISS. I just lifted the turnover figure from my 18/19 tax return. I believe the banks will also take full year 2019 figures.
- You cannot top up or increase a bounce back loan after being approved, or apply for two bounce back loans for the same business, so think carefully about how much to borrow.
- No interest or repayments during the first year
- Yup, free money for a year
- Interest fixed at 2.5% afterwards
- That’s waaaay lower than interest on normal commercial loans, credit cards and overdrafts.
- Loans were due to last for six years, but this was extended to 10 years – and crucially, you can pay money back sooner without getting whacked with early repayment charges
- New options as of 24 September to make repayments more affordable:
- Reduce payments by switching to interest-only payments for up to 6 months, and do this up to three times
- Pause repayments entirely for up to 6 months, although only after making at least six payments
- You don’t have to put up any security
- Which means the bank can’t take away your home or your car, for example, if you can’t pay the money back.
- Super simple application process and fast pay outs
- The Government is backing the loans and covering interest and fees for the first year, which means the banks are actually willing to dole out the money.
- Very little required in terms of paperwork, proof your business has been damaged by coronavirus or detail on what you’re going to do with the money.
So as loans, the Bounce Back version are pretty attractive: no interest or repayments for the first year, a low interest rate afterwards, and no penalties if you pay them back before the 10 years are up.
Sole traders, sole directors of limited companies, and people who only recently became self-employed can all apply, provided their businesses were established before March 2020, have been adversely affected by Covid-19, and are still going.
As support during the pandemic, the Bounce Back Loans have other benefits too:
- They don’t stop you getting other support from the Self-Employment Income Support Scheme (SEISS) or Universal Credit
- You can keep working away at your business, unlike employees who are furloughed
- As a sole trader, you won’t pay tax on the money, unlike any SEISS payout.
Where can I get a Bounce Back Loan?
A whole host of big banks offer Bounce Back Loans, including (deep breath): HSBC, Lloyds, TSB, Barclays, Santander, NatWest, RBS and Bank of Scotland, plus the Co-operative Bank, Clydesdale Bank, Yorkshire Bank, Danske Bank, Ulster Bank and Starling.
More recent additions include Tide, Bank of Ireland, Allied Irish Bank (AIB) and Skipton Business Finance, followed by JCB Finance, Metro and Paragon. You can find the full list of banks accredited to offer Bounce Back Loans here.
But no Monzo and none of the building societies *cough* Nationwide.
So if you’ve already got a business account with one of those banks, you’re sorted. If you’re willing to open a business account, a few will let you sign up as a new customer and still apply for a Bounce Back Loan (Barclays, NatWest, RBS and Ulster Bank. Starling started off letting new customers open accounts and apply, but is now prioritising existing customers).
The British Business Bank (which signs up banks offering Bounce Bank Loans and other coronavirus financial support) warns that businesses that are new, rather than existing, customers will have to jump through additional hoops when opening accounts. These include customer fraud, anti-money laundering (AML) and Know Your Customer (KYC) checks, before it’s possible to get a loan.
Limited companies have to have a proper business account. The issue comes if, like me, you’re a sole trader who has been pottering along using a personal current account for your business, to avoid the pesky fees and hassle of an official business account.
What if I don’t have a business account?
Most of the banks won’t let you get your mitts on a Bounce Back Loan without a business account, even if you’re already a customer.
Only HSBC, Santander, Clydesdale Bank and Yorkshire Bank will let existing personal customers apply, without opening a new account. Buried in the HSBC small print, it also says sole traders who are First Direct personal current account customers, with businesses that started on or before 5 April 2019, can apply through the HSBC online portal.
NatWest, RBS and Ulster Bank will let existing customers open a ‘feeder’ account instead, a temporary account which just receives the loan money before paying it out somewhere else.
But if you’re not an existing customer of those banks, and you’re still holding out against a business account, the only option is HSBC. HSBC will let brand new customers open a feeder account, not just a business account, to apply for a Bounce Back Loan. You might end up further back in the queue than existing customers or business account applicants, but the money should show up in the end.
Brace yourself for delays though:
We’re working hard to process as many Bounce Back Loan Scheme applications as we can, as quickly as we can. We’re making progress. Thank you for bearing with us.
— HSBC UK Business (@HSBCUKBusiness) May 14, 2020
UPDATE 18 MAY: So many readers have commented about delays in getting Bounce Back Loans from HSBC that I asked for a comment, and a spokesperson said:
“We’ve seen unprecedented demand for Bounce Back Loans. We have been working hard to get these much-needed loans to our customers as quickly as possible and we apologise for any inconvenience. Loan offer letters are being emailed to customers and funds will be received shortly after them being accepted. We have advised businesses that aren’t currently our customers to go to their own bank first because the due diligence on anti-money laundering and fraud checks for account opening will take significantly longer.”
Originally, I suggested challenger bank Starling as an alternative. Starling offers a free business bank account and normally has a great rep for opening accounts pdq, which seemed like a fast route to a Bounce Back Loan. However, Starling does then expect you to use its account as your main business account.
However, due to record demand, Starling has paused applications for new business accounts for sole traders until 1 June. Limited companies and limited liability partnerships can still apply, but as of 21 May Starling is prioritising Bounce Back Loan applications from established customers.
As of May 17, Starling was also rejecting a pretty high 1 in 6 bounce back loan applications:
I have been checking where we are on turnaround.
This is where we were last night.
Starling launched on Monday 11th May.
In total, we have received 18,161 applications and processed 75% of them.
84% of those processed were acceptances, 16% were declines
— Anne Boden (@AnneBoden) May 17, 2020
Why did I apply for a Bounce Back Loan?
Normally, I steer clear of debt. No car financing, overdraft or outstanding credit card balances. Heck, we don’t even have a mortgage, after making the big move from London to Suffolk.
But I do like free money, and for 12 months, the Bounce Back Loans are completely free: no fees, no interest, no repayments. As a sole trader, I won’t even have to pay any tax on the borrowing, unlike any lump sum from SEISS.
Officially, Bounce Back Loans can be used for investment or the costs of running your business, including bills, debts and wages. Directors of limited companies could also take money as dividends, but it’s worth checking with your accountant about the tax implications. The form makes it plain that the money has to provide economic benefit to your business, and be used for business and not personal purposes.
In practice, a Bounce Back Loan could come in very handy for :
- clearing expensive debt
- investing in your business
- boosting lower income
- bolstering emergency savings
- contributing to tax bills
- sitting back and hoping to become a millionaire
For anyone who already has expensive debts, a Bounce Back Loan could clear some or all of that burden, with the breathing space of no interest payments for a year.
I’m incredibly fortunate that as a self-employed money journalist and blogger, I can continue working during lockdown. I’m even luckier because although some work has been delayed or disappeared, I do still have some regular contracts, and therefore income.
But having lived through the 2008 credit crunch, I’m only too aware that work can take a while to pick up.
As an optimist, a Bounce Back Loan could help invest in my business, whether as training courses, ad spend, broadcast equipment, a website redesign or creating a logo. As a pessimist, the money could bolster income or emergency savings should work disappear.
I spent yesterday crunching the numbers for my 2019/20 tax return. This is highly unusual, as I don’t normally touch my tax return until the dying days of January. However, I wanted to work out quite how much I’ll owe in tax next January, especially if I defer my July tax bill till then.
Because do note that while the Government is offering to delay the July tax payment, it won’t actually disappear. Instead, you just get stuck with paying it later, on top of your normal January tax bill. And given lockdown didn’t start until right at the end of the 19/20 tax year, January 2021 tax bills could still be hefty. Any drop in income caused by coronavirus will only really be reflected in the January 2022 tax bill, although you could ask for a lower ‘payment on account’ part for 20/21 due in January 2021 and July 2021.
So even if I don’t need the Bounce Back Loan money instantly, it could come in handy towards a chunky future tax bill.
Stashing the cash in a savings account won’t generate much, when interest rates are so rubbish. You won’t get much more than a tenner for every £1,000 borrowed. But I could potentially bung the lot in Premium Bonds while waiting to use it for my business, cross my fingers for a million pound jackpot*, then pay the loan back before the interest kicks in.
*Odds of winning a million pounds with any one Premium Bond are 1 in 43.07 million, so don’t hold your breath
The drawbacks to Bounce Back Loans
However attractive Bounce Back Loans might be, they are still debt.
You will need to pay the money back, plus interest if you borrow longer than a year.
If you’re likely to blow the lot with nothing to show for it, then borrowing could be a massive mistake. If borrowing would keep you awake at night, steer clear.
Even if you do decide to go for a loan, remember just because you can borrow up to 25% of your annual turnover doesn’t mean you should. As my driving instructor used to say about the speed limit – it’s a limit not a target. If a smaller sum would be helpful, and easier to repay, borrow less. And if your business picks up, and you are able to pay the loan back quicker, you’ll pay less (or even zero) interest.
On Wednesday 13 May, I sat around on hold to HSBC long enough to ask for a feeder account. Apparently I should hear back within five working days, at which point I can actually apply for a Bounce Back Loan, and hope to have the money a few days after that.
But if you already have a business account with the right bank, you could get a payout even quicker, potentially only a day or two after applying.
Will keep updating this post to let you know how I get on!
Day 2, Thursday 14 May: Discovered I could use the account details for my First Direct current account to apply for a Bounce Back Loan via HSBC’s online portal, so put in an application over the internet. Figured if and when I was contacted about the feeder account, I could explain about the online loan application, and make sure I didn’t end up applying for two loans.
Day 6, Monday 18 May: Sounds like many banks have been overwhelmed by applications for Bounce Back Loans. I haven’t yet heard from back from HSBC. Many readers below have commented about delays with HSBC and Starling, although others have had their loans paid out promptly.
Day 7, Tuesday 19 May: Had a call from HSBC, six days after asking for a feeder account, booking a call tomorrow (20 May) to go through the checks needed. Explained I had also applied via the online portal with my First Direct account, and wanted to make sure I only end up with a single loan. The client support manager said I might as well set up the feeder account while I could, in case it was needed, but to let him know if I did hear anything from the online application. So progress, but still not near any cash!
Day 8, Wednesday 20 May: 65 minutes (!) on the phone with HSBC, providing all the info for the ‘Know Your Customer’ and ID checks to open a feeder account. Wish I’d know I’d have to take a selfie before the call started… Told it could take 4 to 5 working days to confirm the account had been opened and then I can apply for the actual Bounce Back Loan.
Client support manager had not been able to track down my online application for a Bounce Back Loan from the reference number I provided. Sounds like the online applications for Bounce Back Loans, and the applications for feeder accounts, are handled completely separately.
Day 10, Friday 22 May: Email from HSBC. HSBC have signed a document for my feeder account and ‘are carrying out our usual due diligence and approval checks’, but the account isn’t open yet. Meanwhile I still haven’t heard anything at all about my actual Bounce Back Loan application using my First Direct account details.
Day 14, Tuesday 26 May: Two weeks since I started trying to get a Bounce Back Loan. Still no feeder account. Still no response to my online loan application using my First Direct account details.
Day 16, Thursday 28 May: Email from HSBC. Apparently, my application for a feeder account is expected to be approved by tomorrow and they will be in touch afterwards.
Day 17, Friday 29 May: Email from HSBC. Minor error in my feeder account application form. Put a trading name in one field but ticked ‘no trading name’ somewhere else. This has now been corrected and resent to quality control, but means I won’t hear back till Monday.
Ring HSBC coronavirus support line to check on the progress of my Bounce Back Loan application via the online portal using my First Direct details, submitted on Day 2. Nice lady says if I got an email after submitting it with an application ID number (I did), my application is in progress. Cannot tell me anything else at all – can’t access loan applications, can’t see any progress, can’t put me through to anyone who could, can’t give any idea of how long loan applications are taking to process.
Does say that no feeder accounts have been opened yet. Can this really be true?
Day 20, Monday 1 June: Call from HSBC! My feeder account is soooo close to being opened. 1 hour six minutes on the phone, all to add two signatures and bank account details to an application form and send it back.
Note for anyone else: Don’t use Safari to access the HSBC secure system. Use Chrome or another browser, to avoid getting stuck in hideous ‘downloading’ limbo. My client support manager, Sam, is endlessly patient but I am beginning to understand why processing thousands of applications may be taking weeks.
11.43am: I have a feeder account! HSBC calls back with my account number and sort code. I can now apply for a bounce back loan using the online portal and my feeder account info. The same online portal that I used 18 days ago, when I applied using my First Direct personal current account info. The dilemma: should I put in two applications? Or continue waiting for the results of the first application? I ask if it is possible to contact the Bounce Back Loans team, and find out what’s happening with my original application.
Day 23, Thursday 4 June: Emailed my client support manager for the HSBC feeder account, asking if he’s discovered who I can contact about the progress of my application using my First Direct details. He can’t give me a phone number, but does say he has referred my case to the service recovery team.
4.22pm: Email from HSBC Echosign with a Bounce Back Loan document and direct debit instructions to sign! I sign online and get emailed a copy of the completed document. After three weeks, my Bounce Back Loan might actually be happening! Now to see when the money actually reaches my account…
Day 24, Friday 5 June: The Bounce Back Loan money has been paid into my account!!!! Showed up the morning after signing the loan document. So it’s taken 15 working days, and 22 actual days, from applying with my First Direct personal current account details on Thursday 14 May.
Now – over to you. Have you applied for a Bounce Back Loan? Why does it appeal to you? Or why would you avoid one?