Should you apply for a coronavirus Bounce Back Loan?
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When assessing the support that is available from the government during this crisis, I originally dismissed the option of taking out any form of loan. My view was that I didn't want to get into any form of debt.
However, today I applied for the Bounce Back Loan. To my mind now, this is an absolute no-brainer, and I'd urge any company that is eligible to consider the same.
In this blog, I'll explain my thoughts behind the change of mind, but let me first do the legal bit. To be clear, I am not providing any financial advice and any decision you make is your own. You should seek suitably qualified individuals for advice if you want some help deciding whether this is the right course of action for you.
What is the Coronavirus Bounce Back Loan?
Simply put, the Coronavirus Bounce Back Loan is a business loan that's guaranteed by the government, and is available from most of the main high street banks. Key points are
- Guaranteed by the government - No personal guarantees
- Interest fixed at 2.5%
- Quick and easy application (took me less than 5 minutes)
- Lending cap of 25% of turnover or £50K, which ever is higher
- Repayment term of up to 6 years
- No repayment fees for early settlement (either in full or in part)
- 1st years interest is covered by the government
So to be clear, I can get a £50,000 capital lump sum into my business, with no personal risk to me, without paying any interest for the first 12 months and then repaying the capital at a very low interest rate that is in line with my mortgage rate.
To me that is very attractive.
However, although I'm pretty positive about businesses taking this loan, I'd also urge caution. This loan shouldn't be seen as a last chance lifeline - If your business is in trouble and you're thinking that this is just going to bail you out of existing debt, then you should probably seek other measures.
Borrowing to pay for expenses or debt already incurred is never a good idea.
The loan is designed to be a stimulus to help get things moving, and is different to the business interruption loan which was put in place to help companies with immediate hardship.
When you consider that one of the main restrictions that small businesses face when trying to grow is a lack of available capital or cashflow, then this is a gift.
Having a reasonable sized injection into your business presents opportunity that you probably didn't have prior to the pandemic.
Used properly, it allows you to accelerate your growth and gives you the chance to push your business forward and put in place the actions and infrastructure for you to come out of the current situation with a strong chance of not only surviving, but growing.
Here's some ideas where you could use this capital:
- Performing the necessary environmental changes to ensure it's safe for employees to return to work.
- Investing in a new team member (not just covering existing wages - if you can't cover existing wages with cashflow, then you should make changes to your team).
- Updating/changing your website.
- Installing a new CRM/marketing platform.
- Creating content and lead generating processes and marketing campaigns.
- Improving your customer service provision.
- Upgrading your IT equipment to improve efficiency.
- Updating your sales collateral.
I'm sure there's loads of other opportunities that you can think of. Think of what you would have done pre-COVID-19 if someone injected £50K into your business.
If you're looking for some guidance as to how to move your business from survival to bounce back mode, then you'll find some great ideas in our SaaS survival checklist.