If you ran a limited company during Covid, there is a reasonable chance that one number is still quietly influencing the way you think about business finance:
2.5%
That was the interest rate on a Bounce Back Loan.
Up to £50,000 was available, the Government covered the interest for the first 12 months, repayments were initially deferred and the application process was deliberately designed to get money into businesses quickly.
At the time, it made complete sense.
The problem is what happened afterwards...
Bounce Back Loans didn't just provide cheap finance. They changed business owners' perception of what business finance ought to cost.
And six years later, I still see the consequences of that...
The cheapest loan you ever had may also be the worst benchmark
I've worked in finance for more than ten years.
During that time I've watched interest rates fall, rise, fall again and then rise dramatically. I've arranged finance when money was extremely cheap, through Covid and its various government interventions, and through the much more normal commercial lending environment businesses find themselves in today.
One thing I've learned is that borrowers rarely judge a finance quote in isolation.
They compare it with something. And very often that comparison is not particularly useful.
If your last significant piece of business borrowing was a £50,000 Bounce Back Loan at 2.5%, a perfectly reasonable commercial finance offer today can look horrendously expensive.
It's an example of what behavioural economists call anchoring.
Once your brain has been given a number, it becomes remarkably difficult not to use it as a reference point.
If petrol suddenly dropped to 70p a litre for six months because the Government was subsidising it, we'd probably spend the next decade complaining that £1.40 was extortionate.
But the 70p wasn't really the normal price.
That is essentially what happened with Bounce Back Loans.
Prefer to watch? I explain why Bounce Back Loans still distort how business owners view today's finance rates in this 3-minute video.
Bounce Back Loans were not normal commercial lending
Bounce Back Loans were not normal commercial lending
This distinction matters.
The Bounce Back Loan Scheme was created as an emergency response to an extraordinary economic situation.
The Government set the interest rate at 2.5% per annum, covered the first 12 months of interest and gave lenders a 100% government-backed guarantee. Businesses themselves remained responsible for repaying the debt.
This wasn't the market discovering that lending £50,000 to small businesses only carried 2.5% worth of risk.
It was a deliberate intervention designed to get money into businesses exceptionally quickly.
That's an important difference.
Because when I speak to a business owner today and they say:
"My Bounce Back Loan was only 2.5%..."
My answer isn't that they are wrong. They're absolutely right. It's just the wrong comparison.
What should business finance cost today?
I'm sorry to say, there isn't one answer.
And this is where I think business finance is often badly sold.
The question shouldn't simply be:
"What's the cheapest rate for a business loan?"
Before we get anywhere near the rate, I'd rather understand:
- What are you buying?
- Why do you need the money?
- How long will you need it for?
- What does the business look like financially?
- Is there an asset involved?
- How strong are the directors behind the business?
- What does the cash flow look like?
And, most importantly:
- What is the money going to do for you?
A £100,000 loan used to plug an unexplained hole in a struggling business is a very different lending proposition from £100,000 being used by an established company to buy a machine that increases production and generates another £250,000 of revenue.
This is why I don't just "arrange business loans"
Most of the enquiries I receive now come through recommendations, existing clients, my content and increasingly from people who have found me through tools such as ChatGPT.
What I find interesting is that the better enquiries aren't simply asking me to find them a loan.
They're looking for somebody to help them make sense of their options.
That's an important difference.
There are hundreds of websites where you can fill in a form asking for £50,000 and wait for somebody to quote a monthly payment.
That's not really how I work.
After more than a decade doing this, I tend to look at a finance proposal through three broad areas:
- Business performance. Can the business realistically afford the borrowing?
- Director influence and creditworthiness. Who's behind the company, what is their track record and how much strength sits behind the application?
- Asset security. Is the lender financing something tangible that retains value and gives them additional security?
The strength of one area can sometimes help compensate for weakness somewhere else.
And understanding that is far more useful than simply firing the same application at ten lenders.
Government-backed doesn't mean Government-priced
This brings me to another misconception I regularly come across.
The Growth Guarantee Scheme, or GGS, is sometimes spoken about as though it is the modern version of the Bounce Back Loan... It isn't.
There is a family resemblance because both involve government guarantees, but economically they are very different animals.
Bounce Back Loans and CBILS operated during the pandemic. The Recovery Loan Scheme followed, and the current Growth Guarantee Scheme evolved from the third iteration of RLS. GGS launched under that name in July 2024 and has subsequently been extended to March 2030.
Under GGS, the Government provides the lender with a 70% guarantee against the outstanding facility, subject to the scheme rules.
That does not mean the Government pays 70% of your loan. The borrower remains 100% liable for the debt.
And it also doesn't mean the loan automatically comes with a wonderful government-subsidised interest rate.
Pricing is still determined by the lender and depends on the particular transaction. The lender still carries out its normal credit, fraud, AML and KYC checks.
In fact, there is an interesting detail that gets missed surprisingly often:
- If a lender can offer you equivalent or better terms without using GGS, they should do so.
Which means something described as a Government-backed loan isn't automatically the cheapest option.
Sometimes ordinary commercial finance is better!
Asset Finance changes the equation again
This is where understanding the type of funding matters.
Suppose a business needs £80,000.
If that £80,000 is required for general working capital, the lender largely has the strength and future cash flow of the business to rely upon.
But suppose the same business needs £80,000 to buy a piece of machinery worth £100,000.
Now there's an identifiable asset sitting behind the transaction.
That can completely change the lender's view.
It's one reason I spend a lot of my time arranging asset finance.
Vehicles, machinery, plant and equipment can provide lenders with tangible security. Depending on the business and transaction, that can create opportunities that simply aren't available through an unsecured working capital loan.
Asset Finance itself can also be supported under GGS, alongside products including term loans, overdrafts and invoice finance.
But again, I wouldn't start with:
"Can I get GGS?"
I'd start with:
"What's the most sensible way of funding this?"
Cheap money can still be expensive
There's another problem with obsessing over interest rates.
Consider that I offer you £100,000 at 6%.
😃 Sounds attractive...
But the money sits in your bank account for a year doing absolutely nothing.
🤔 That's expensive money.
Now imagine borrowing £100,000 at 12% allows you to buy equipment which saves £40,000 a year in labour costs or enables you to fulfil £200,000 of additional profitable orders.
The second loan costs more. But it may be vastly better finance.
I'm obviously not suggesting businesses should ignore price.
The total cost, monthly commitment, fees, security, personal guarantees, early settlement terms and structure of the facility all matter.
But price is only meaningful when you understand what you are buying with it.
That's something I've become increasingly convinced of over the years.
A finance broker's job shouldn't just be to help somebody borrow money.
- Sometimes my job is to tell somebody that the finance they're considering doesn't make sense.
- Sometimes it's restructuring the requirement.
- Sometimes £100,000 of working capital should actually be £40,000 of asset finance and a smaller revolving facility.
- Sometimes paying slightly more for flexibility is worthwhile.
- Sometimes the cheapest facility is absolutely the right answer.
And sometimes the best advice is:
- Don't borrow the money at all.
Yes, you read that correctly. A finance broker telling you not to borrow money. But then, I’m not trying to be like every other finance broker.
Forget the Bounce Back Loan
Not literally, obviously... If you still have one, please continue paying it.
But as a benchmark for what commercial business finance should cost heading into 2027?
It's time to let it go.
The Bounce Back Loan Scheme was an extraordinary product created for an extraordinary moment.
It did exactly what it was designed to do.
But using its 2.5% interest rate to judge today's business finance is a little like judging every hotel you've stayed in since your honeymoon against the one where somebody else paid the bill.
It's memorable. It's just not especially useful.
If you're looking at finance today, I'd concentrate on two things instead.
- First, choose the right financial product for what you're actually trying to achieve.
A business loan, asset finance facility, revolving credit line, invoice finance arrangement and trade finance facility solve very different problems.
- Second, make sure the money has a job.
If your business is paying to borrow capital, that capital should ideally be protecting cash flow, improving efficiency, generating additional profit, enabling growth or solving a problem worth more than the cost of the finance.
That's a much more useful calculation than asking whether today's lender can somehow recreate 2020.
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