Banks blocking Bounce Back Loans: What you need to know

November 27, 2020 / Bounce Back Loans

After its widely-criticised Coronavirus Business Interruption Loan Scheme, under which only a small number of businesses successfully secured funds, the government introduced Bounce Back Loans to help small to medium businesses struggling during the coronavirus pandemic.

The Bounce Back Loan Scheme has been issued more than 1.26 million times across the UK, helping many businesses during this tricky time. However, for struggling businesses that have not yet applied, bad news comes with the revelation that many banks and providers are now blocking access to the loan.

Despite the Chancellor extending the deadline for applications to the loan until the 30th November, many small businesses have struggled to apply as lenders block access to the loan or restrict them to existing customers only.

For businesses in need of financial help at this time, this isn’t welcomed news.

In this article, Clarke Bell looks at what the government’s Bounce Back Loan entails, why banks are now blocking access to it, what this will mean for your business and what your alternatives are.

What is the Bounce Back Loan Scheme?

The Bounce Back Loan Scheme was introduced by the government to help small to medium businesses that were excluded from the Coronavirus Business Interruption Scheme, designed to offer a quick cash injection to struggling businesses and keep them on their feet during trying times.

How much can businesses borrow?

As part of the Bounce Back loan, businesses can borrow between £2000 and up to 25% of their turnover, up to a maximum of £50,000.

What are the interest rates? 

For the first year, the government has guaranteed 0% interest rates. After the first 12 months, interest rates will stand at 2.5%.

When is the deadline for applying to the scheme?

On the 24th September, Rishi Sunak announced that, as part of the Pay as your Grow Scheme, the Bounce Back Loan Scheme deadline would be extended as the pandemic continues to damage businesses.

Businesses now have until the 30th November 2020 to apply.

How long does the loan last?

Although the initial payback period for the loan was 6 years, under the Pay as your Grow Scheme Sunak also announced that businesses could extend the repayment period up to 10 years. Businesses also have the option to pay back the loan early without facing any penalties or fees.

On top of this, businesses can choose to make interest-only payments for up to 6 months and pause repayments for up to 6 months (this option can only be used once and only after having made 6 payments.)

Which businesses are eligible for the scheme?

To be eligible for the Bounce Back Loan Scheme, businesses must be UK based, have been established before March 2020 and must have been adversely impacted by the coronavirus pandemic.

You cannot claim for the loan if you have already received help under the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme or COVID-19 Corporate Financing Facility, however, if you have been given a loan of up to £50,000 under one of these schemes you can transfer it to the Bounce Back Loan Scheme. You have until the 4th of November to do so.

That’s how the Bounce Back Loan Scheme works and who is eligible for it, but if your business is in need of financial support and has not yet applied, the bad news is that there have been reports that banks are now blocking applications.

Latest news: banks now blocking access to bounce back loans 

Although businesses technically have until the 30th November to apply for Bounce Back loans, there have been recent reports of financial institutions withdrawing from offering the loan after being inundated with applications.

Small businesses now find themselves in the difficult position of racing to switch their bank accounts to one of the few lenders still accepting applications from new customers.

Lenders including Tide and Conister have now stopped offering the loan, although they still remain on the list of 28 lenders as advertised by the government, adding to the confusion.

Many businesses are now finding that banks and lenders are only accepting applications from existing customers. Some banks are even restricting this only to customers that were registered before the scheme was launched in May 2020.

As more banks blocks access to the loan or pull out altogether, businesses are in a rush to switch bank accounts in a last-ditch attempt to apply for the loan.

This has left 250,000 small to medium businesses struggling to access Bounce Back Loans.

As cases of coronavirus continue to surge, many of these businesses continue to struggle and fear that without support from the government-backed scheme, they will not make it through this difficult time.

What are your options?

If you are a small to medium business that has not received government support and are now struggling to secure a bounce-back loan, it might be time to reconsider your options.

It is also worth bearing in mind that when aiming to secure a loan, it will need to be paid back. After all, a loan is not a gift so you will have to take the loan repayments into account when you are doing your financial forecasts.

For many companies, borrowing additional money may just get them further into financial trouble. For these companies, liquidation may be the better option.

If liquidation is something you are considering as an alternative, Clarke Bell is here to help. We’ve helped thousands of businesses of all shapes and sizes who are experiencing cash flow problems, finding the best way forward under the circumstances.