Information and support

Bounce Back Loan Scheme – it’s not too late to apply

The UK government launched its Bounce Back Loan Scheme (BBLS) in May 2020 for businesses looking for immediate financial support after being disrupted by COVID-19.

Though it’s only early summer, May feels like a lifetime ago for many business owners. Yet things are still in a great state of uncertainty – and, for most businesses, will continue that way for some time.

But it isn’t too late to get a Bounce Back Loan – applications remain open until 31st January 2021.

Below, Seamus McGuckin, Head of Business Banking at commercial bank AIB, answers questions many UK SMEs and micro-businesses have about Bounce Back Loans and the scheme as a whole.

Business Finance Guide: Tell us a bit about yourself and your role at AIB

Seamus McGuckin: As AIB’s Head of Business Banking NI, I lead our network of business centres that support SMEs across Northern Ireland. We serve customers with bank facilities ranging from £150,000 up to £5 million. AIB offers Bounce Back Loans, among many other forms of finance, to businesses right across the UK.

What is the Bounce Back Loan Scheme (BBLS) and how does it work?

BBLS provides financial support to businesses across the UK that have seen their cashflow disrupted as a result of COVID-19.

It’s aimed mainly at small and micro-businesses, offering them loans that range from £2,000 to a maximum of £50,000. The value of the loan is linked to the turnover of the business, and no business can borrow more than 25% of its turnover.

Businesses that apply to the scheme can take advantage of the following benefits:

  • A low fixed-interest rate of 2.5%
  • A fixed loan term of six years
  • It’s an unsecured loan, so lenders cannot take any security or personal guarantees
  • The government covers the first 12 months of interest payments through a Business Interruption Payment
  • No need to make any repayments on the capital for the first 12 months of the loan

How many businesses have you lent to so far?

Since AIB was accredited to the Bounce Back Loan Scheme in the middle of May, we’ve approved in excess of 3,000 loans for customers across Northern Ireland and Great Britain. When we were first accredited, there was a surge of applications. A month on, we’re still receiving applications on a daily basis as customers begin to look forward and plan for the months ahead.

The financial support that we were most often able to provide when the pandemic first broke out largely focused around three-month capital and interest holiday repayment loans.

As these are now nearing maturity, smaller businesses are seeking to bridge the next period and ensure they have enough cashflow as the economy starts to get going again. This is where BBLS really comes into its own.

How does the lending process for BBLS work?

Both the application and approval process are extremely streamlined. Businesses will need to complete a standard online application form – available through the British Business Bank website or the scheme’s other accredited lenders – which takes around 10–15 minutes.

Unlike some of the other government loan schemes, the BBLS application asks the business to provide only a limited amount of financial information. However, to obtain the loan, a business must:

  • have been affected by COVID-19
  • confirm it was operational before 1st March 2020
  • declare its turnover for 2019, and that 50% of it is coming from trading activity in the UK
  • not have been a ‘business in difficulty’ at the end of December 2019
  • not be a credit institution, insurance company, public-sector organisation or state-funded primary or secondary school, as these are classed as restricted sectors

That being said, if a business answers yes to being in financial difficulty, it can still apply for a Bounce Back Loan but will have to go through further steps with their lender in order to complete the process.

At AIB, once we approve an application, we send the customer their facility letter in digital format so they can accept it using an electronic signature (DocuSign). It’s all about making the end-to-end process easy. We aim for it to take no more than five days from a customer completing the application process to the funds being credited to their account.

What is the main difference between BBLS and the Coronavirus Business Interruption Loan Scheme (CBILS)?

One of the main differences is that with CBILS, the lenders are bound by the scheme’s rules to conduct a credit assessment, as they would according to their normal lending standards.

BBLS is completely different. The whole aim of this scheme is about getting the support to businesses as quickly as possible. Lenders are relying on borrowers to self-certify, so the fact that the government is providing a 100% guarantee will give the lenders confidence.

A really thorough due diligence investigation from a repayment capacity analysis is not necessary, and if something did go wrong, the lenders have the guarantee from the government.

What types of businesses have applied for Bounce Back Loans?

We’ve been approached by businesses from a wide variety of sectors. However, for the Northern Irish economy, the largest sector of growth over the last couple of years has been tourism and retail hospitality. We know those types of operations have really needed help due to lockdown measures, and this has been reflected in the many applications we’ve received.

We’ve also had a large number of applications from businesses in sectors such as manufacturing, professional services and agriculture.

The scale of the BBLS has been really important. We work with a lot of small employers with smaller turnovers, that don’t have an internal financial support function to help them with the business plans or cashflow projections that CBILS requires. BBLS has proved to be really beneficial for them.

What does a borrower need to prepare before approaching a lender?

In the first instance, our advice would always be for the borrower to contact their own bank to determine if it’s a BBLS-accredited lender. We say this, because it’s more straightforward to get an application approved with an existing bank for two reasons:

  1. It already has some sort of financial documentation on the borrower’s account
  2. It will be familiar with how the borrower’s account has performed to date, and better understand the business’ turnover levels

If a business was to approach a new lender, it would be starting a relationship from scratch and would have to go through more paperwork and more processes.

Can a business approach more than one lender?

If it’s been unsuccessful with one lender, a business can apply for a loan with another one.

However, it would need to do this in a consecutive sequence, as one of the declarations it must make on the application form is that this is its only application for a Bounce Back Loan during this time. So, a business should only begin the application process again once it’s had a confirmed ‘no’ from a lender.

If a business is successful in getting a loan, can it top the payment up?

No, it can only have one Bounce Back Loan. This is very different to CBILS, where businesses can apply for funding and be accepted a number of times, through the same or different lenders.

Therefore, if a business thinks it might need £50,000 to cover itself, it should apply for the whole £50,000. It can’t apply for £20,000 initially then another £30,000 in three months’ time. Business owners should create a cashflow forecast and make a decision based on that.

What is the repayment structure like for BBLS?

The loan is a fixed-term loan for six years, the first of which is interest-only. The government covers interest payments in the first year, through what it calls a Business Interruption Payment.

There are no upfront arrangement fees and, similarly, there is no penalty for early repayments. This means businesses can make ad-hoc repayments at any time during the course of those six years.

What advice would you give to those businesses looking to apply for a Bounce Back Loan?

First, to remember that it is a loan, and that they will remain 100% liable for that loan for its entirety. There have been some misconceptions that, because there’s a government guarantee, the payment is like a grant and won’t have to be paid back. But that isn’t the case, and unless the business ceases trading, it will need to repay the money during the course of the loan.

Second, businesses need to review their cashflow projections before applying. BBLS is only one of several government support schemes, and the maximum amount is capped at £50,000. If a business thinks it needs more than that, a Bounce Back Loan might not be the right solution.

However, if it has a pressing short-term need for cash, BBLS is a quick, straightforward way of getting support. Whilst you cannot apply for both loans, a business that ultimately has a CBILS facility can apply for a Bounce Back Loan Scheme facility if the CBILS facility will refinance the Bounce Back Loan facility in full.

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