bounce back loans

What can I do with a Bounce Back Loan?

Victoria Scally News

Just received your Bounce Back Loan and wondering what you can do with it? Read on!

Many business owners are now in receipt of a Bounce Back Loan. It is unlikely that if you are reading this you won’t have come across them, but if that is the case, be sure to check out our daily blog HERE for details.

As a brief reminder, these are for businesses adversely affected by coronavirus, the loans are up to 25% of your turnover, or £50,000 – whatever is lower, and they are obtained through your bank. 

So, what can I do with it?

The British Business Bank, the body behind the scheme, have given some commentary on this, but a short summary would be…. whatever you like in general!

Provide an ‘economic benefit’ to the business

You must use the loan to provide an ‘economic benefit’ to the business. What this means is that you will use the loan to provide the business money to work with. You aren’t allowed to borrow for ‘personal purposes’.

Onto some specific uses:

As a cash reserve / To pay costs

The most obvious use of the loan cash would be to continue to pay your costs, such as your team’s wages, rent and other regular costs. This is often referred to as ‘working capital’.

We’ve also seen clients catching up with outstanding tax bills. Remember if you are VAT registered or have a personal tax bill due in July, there is a chance, depending on your circumstances, you won’t have to pay anything on this until next year.

Using the funds personally or paying Dividends

Under the general rule you are not allowed to borrow for ‘personal purposes’ , but it is possible to end up with a result that means you are enjoying some of the funds personally.

For example, if your limited company has borrowed it, and you had enough profits on paper to take a dividend (lets say you had a lot of money owed to you in a healthy company), you could take it as a dividend.

You need to check with your accountant on this, as the tax consequences of getting this wrong can be pretty hefty at around 32.5% of what you take out, whether in additional dividend tax or due to you being in a situation where you owe the company that money back on paper.

The treasury have confirmed that it can be paid as a dividend in a press interview.

Using the funds to refinance

There are no restrictions on using the cash to ‘refinance’ another loan. So you could borrow it and pay off a more expensive loan, such as a van loan. The interest rate is only 2.5%, with no repayments in the first 12 months, so it is VERY cheap for a loan.

If you have any specific questions on this for your business, please get in touch – we’d love to help.

If you want to see the above talked through, check out the video below: