Coronavirus: Problems with Bounce Back Loans

The British Business Bank publishes detailed information about Bounce Back loans. Further background is available in our briefing paper Coronavirus: Business loans schemes. General information appears in our briefing paper Coronavirus: Support for businesses. 

Who runs the scheme and who offers loans?

The British Business Bank (BBB) oversees the scheme and accredits lenders. (A list is available.) The government and the BBB have delegated all aspects of decision-making to individual lenders. This means that lenders make decisions about applications, as well as who they will accept applications from.

How large can the business be?

Although BBLS is advertised as being for smaller businesses, there is no upper limit on the size of businesses that can apply.

Do businesses have to apply to their existing bank?

No, they can apply to any accredited lender, but it may well be more efficient to apply to their existing bank first. This is because the approval process involves some basic “know your customer” security checks. Businesses should only have one live application at a time. Being rejected by one lender should not prevent applications being considered by others. But it’s important to know why the initial application was rejected.

Why is a lender taking so long to decide?

Reasons may vary, so businesses should contact the lender to find out why. Many lenders have been overwhelmed by the level of demand and so it has taken much longer than expected to consider applications. It may be worth reviewing recent articles online about which lenders are taking more or less time to decide.

Why do some lenders only accept applications from existing customers?

This is most likely to result from attempts to manage levels of demand. Again, each lender is free to set its own criteria in this area. Some may only accept applications from existing customers with business accounts and have indeed rejected traders who use current accounts. In the latter case it would certainly be worth contacting the lender to discuss the matter.

Why has a lender approved a loan and then closed the business account? What can be done about it?

Banks are free to make these decisions, but customers are equally free to ask why. See the next question too.

Can a business use the loan to pay wages?

Bounce Back loans are intended to offer “working capital” that helps businesses to meet their usual running costs. In many cases that logically includes paying wages. The matter gets more complex, though, because the loans are not meant for “personal benefit”. For that reason some lenders are wary about some types of business — such as sole traders — using loans to pay themselves. Again, individual lenders set the rules for making decisions, so applicants and loan-holders should discuss the matter with them.

What can businesses do if they’re not happy with their lender’s approach?

The first step is to talk to the lender directly to find out more or to seek more information. All customers can use the lender’s own complaints procedure. Many businesses and charities may also use the standard complaints procedure for financial services after they have exhausted the lender’s complaints procedure. Please note:

• This is unlikely to lead to a quick decision for businesses urgently seeking funds.
• The BBB does not deal with complaints about such decisions.

What can businesses do if they need further financial support?

The Government confirmed on 2 November 2020 that existing holders of Bounce Back loans would be allowed to top up their existing loan once – within existing scheme limits.

Businesses that have reached the limit might consider applying for a loan under the Coronavirus Business Interruption Loans Scheme (CBILS). This offers more money but involves a more complex application process. Businesses may apply even if they’ve had a Bounce Back Loan. Please note:

• Any existing Bounce Back Loan will be refinanced and incorporated into the new loan.
• All funds will be subject to CBILS conditions, which may be less attractive to the business.

When do applications close?

There have been several extensions to the original November 2020 closing date. On 17 December the Chancellor announced that the loans schemes would be extended to 31 March 2021.

Further information

Coronavirus: Support for businesses (Commons Library)

Coronavirus: Business loans schemes (Commons Library)

Support for Small Businesses (Commons Library)

Bounce Back Loans Scheme (BBLS) (British Business Bank)

Finance options (British Business Bank)

Disclaimer

The Commons Library does not intend the information in this article to address the specific circumstances of any particular individual. We have published it to support the work of MPs. You should not rely upon it as legal or professional advice, or as a substitute for it. We do not accept any liability whatsoever for any errors, omissions or misstatements contained herein. You should consult a suitably qualified professional if you require specific advice or information. Read our briefing for information about sources of legal advice and help.