Bounce Back Loan Scheme

The Bounce Back Loan Scheme (BBLS) was a UK government initiative launched in May 2020 to help small businesses access finance quickly during the Covid-19 pandemic. The scheme closed to new applications on 31 March 2021, but many businesses are still repaying their loans.

BBLS was one of several emergency finance measures alongside the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS). It was designed to be the simplest and fastest option for smaller businesses.

How the Scheme Worked

The 100% government guarantee meant that lenders bore no credit risk, which is why the application process was far simpler than a traditional business loan. Businesses could self-certify their eligibility without providing detailed financial documentation.

Who Was Eligible?

To receive a Bounce Back Loan, a business had to:

• Be based in the UK
• Have been established before 1 March 2020
• Have been adversely affected by Covid-19
• Not already be an undertaking in difficulty on 31 December 2019 (with some exceptions for micro and small enterprises)
• Not already have a CBILS or CLBILS loan for the same purpose

The scheme was available to sole traders, partnerships, limited companies, and other business structures.

Repayment

Monthly repayments began after the initial 12-month interest-free period. The loan is repaid in equal instalments over the remaining term, with interest at a fixed 2.5% per annum.

Typical Monthly Repayments

There are no early repayment charges, so businesses can pay off the loan ahead of schedule without penalty.

Pay As You Grow (PAYG)

Recognising that many businesses would struggle with the original repayment schedule, the government introduced the Pay As You Grow scheme. This gives borrowers three flexible options:

1. Extend the term from 6 years to 10 years, reducing monthly repayments by roughly 40%
2. Move to interest-only payments for up to 6 months at a time (can be used up to 3 times)
3. Take a repayment holiday of up to 6 months (can be used once)

These options can be combined. For example, you could extend the term to 10 years and also take an interest-only period. Contact your lender to arrange any of these options.

PAYG does not affect your credit score, and lenders are required to offer these options to all BBLS borrowers.

Accounting Treatment

On the Balance Sheet

A Bounce Back Loan appears as a liability on your balance sheet:

• The portion due within 12 months is a current liability
• The remaining balance is a non-current liability

The initial receipt of funds is not income and should not be recorded through the profit and loss account.

Interest and Tax

• Interest payments are an allowable expense for Corporation Tax (for limited companies) or income tax (for sole traders and partnerships)
• The interest-free period in the first 12 months meant no interest expense during that time, though the government paid the interest directly to the lender
• Accurate accounting records should track both the outstanding balance and the interest expense separately

What Happens If You Cannot Repay?

If your business is struggling to meet repayments:

1. Use Pay As You Grow — Extend the term, switch to interest-only, or take a payment holiday
2. Speak to your lender — They may be able to offer additional forbearance
3. Seek advice — Free services such as the Business Debtline and the National Debtline can help
4. Consider formal insolvency options — If the business is no longer viable, options include a Company Voluntary Arrangement (CVA), administration, or liquidation

Because the loan is 100% government-guaranteed, the lender will recover their money from the government if the business defaults. However, this does not necessarily release the borrower. Directors may still face personal liability if they acted improperly, and the government has increased efforts to pursue fraud and misuse of BBLS funds.

Fraud and Compliance

HMRC and the National Investigation Service (NATIS) actively investigate BBLS fraud. Using funds for personal purposes, applying when ineligible, or applying through multiple lenders are all criminal offences. Penalties include repayment of the full amount, fines, and imprisonment.

BBLS vs Other Covid-19 Loan Schemes

The Recovery Loan Scheme

After BBLS and CBILS closed, the government launched the Recovery Loan Scheme (RLS) in April 2021 for businesses that needed further finance. It offered loans of up to £2 million with a 70% government guarantee and was succeeded by the Growth Guarantee Scheme on 1 July 2024. Unlike BBLS, these schemes require a full credit assessment, making them closer to a traditional business loan.

Refinancing a Bounce Back Loan

Some businesses choose to refinance their BBLS loan with a commercial lender to access better terms or additional funding. Before doing so, consider:

• Whether the new loan’s interest rate is genuinely better than 2.5%
• Whether any arrangement fees offset the savings
• Whether you lose access to Pay As You Grow flexibility
• The tax implications of switching from one debt financing arrangement to another

For many businesses, the 2.5% fixed rate and PAYG flexibility make the BBLS loan worth keeping to term.

Key Dates