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Bounce Back loans helped companies not just survive but expand

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Lending via Bounce Back loans has played a role 'beyond mere survival in the face of the pandemic,' according to a study. Photo: Getty
Lending via Bounce Back loans has played a role 'beyond mere survival in the face of the pandemic,' according to a study. Photo: Getty

A majority of small businesses (55%) that received the UK government's Bounce Back Loan scheme (BBLS), which was launched specifically to help those impacted by the coronavirus pandemic, has been used to "adapt and grow", a new report revealed.

Enterprise Nation and Starling Bank's research suggests that BBLS has played a role "beyond mere survival in the face of the pandemic." Enterprise Nation, which provides support and advice to small businesses, surveyed 850 of its members. Respondents were asked a range of questions about their borrowing, including BBLS, in the last year.

While a third (36%) of SMEs used their BBLS loan to pay their bills, 35% have kept funds in reserve and 27% have used the cash to invest in their business.

This investment includes introducing new products and services (27%), bringing in new technology (13%), upskilling staff and retraining staff (13%) or increasing marketing efforts (24%).

Small businesses can borrow up to £50,000 ($68,804) under the scheme, which was set up in May to help companies struggling due to the COVID-19 pandemic. Bounce Back loans carry a 100% state guarantee, meaning taxpayers are on the hook for losses, and there won’t be any fees or interest to pay for the first 12 months.

After 12 months the interest rate will be 2.5% a year. The scheme is open to applications until 31 March 2021.

Eligibility criteria, as per the government's website, is that businesses applying for the loan need to be based in the UK, be established before 1 March 2020, and have been adversely impacted by the coronavirus.

Figures from HM Treasury show that more than 1.53 million Bounce Back Loans have been approved since the scheme was launched, with £46.5bn lent to small enterprise – approximately £30,000 per business.

WATCH: What is the Bounce Back Loan scheme?

Among the respondents, nearly half (48%) said that having the funds in reserve gave them peace of mind during a difficult time and/or gave them greater confidence to innovate, adapt or diversify their business (36%).

Of the small businesses surveyed, 18% reported "significant growth" from the loan and 37% said the loan provided a degree of return.

READ MORE: Liberty Steel's UK operation to restart despite funding hole

Emma Jones, founder of Enterprise Nation, said: “What this research shows is the resilience of small firms. Despite many having taken on a loan for the first time, they have put these funds to good use. The money has allowed them to confidently pivot, introduce new products and services such as online ordering systems or boost their e-commerce provision and enhance their online marketing."

"This must be a relief for the government to hear," she added.

The study also indicates that interest in the government’s new Recovery Loan scheme is high, with seven in 10 SME owners who took out a Bounce Back Loan (70%) saying they would consider applying – equivalent to one in four SMEs (25%).

The new scheme ensures businesses of any size can continue to access loans and other kinds of finance up to £10m per business once existing COVID-19 loan schemes close.

In December, UK bank bosses told MPs they were seeing fraud rates on Bounce Bank loans around five times higher than normal.

The rough figure suggests fraudsters could make as much as £420m through the loans, which are 100% backed by the government. A senior executive at HSBC (HSBA.L) said criminals were specifically targeting the scheme, including by posing as PPE suppliers.

And earlier in October, the government said it fears its could lose as much as £23bn on Bounce Back loans.

The Department for Business, Energy, and Industrial Strategy said that loss rates on the coronavirus loan programme could be between 35% and 60%.

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