Can You Refinance a Bounce Back Loan? Your Options Explained

More than a million UK businesses took out Bounce Back Loans during the pandemic. Now that the repayment-free period is over, many business owners are asking whether they should refinance to a different product — perhaps to reduce monthly payments or consolidate other debts.

The short answer is: almost certainly not. The BBL's 2.5% fixed rate is so far below any market rate that switching will cost you more in virtually every scenario. But there are nuances worth understanding, particularly if you're struggling with cash flow.

Pay As You Grow: your built-in flexibility

Before considering refinancing, most BBL borrowers should explore Pay As You Grow (PAYG). This is a government-backed scheme that lets you modify your repayments — and it won't cost you more in the long run in most cases.

PAYG offers three options, each usable up to three times during the life of your loan:

• Extend to 10 years. If you started with the standard 6-year term, you can extend to 10 years. This reduces your monthly payment but increases the total interest paid, since you're borrowing the money for longer.
• Interest-only payments for 6 months. You pay only the interest on your outstanding balance for 6 months, then revert to normal repayments. Your capital balance doesn't reduce during this period.
• Repayment holiday for 6 months. You make no payments for 6 months. Interest still accrues and is added to your balance. This is the most expensive PAYG option but useful in a genuine cash crisis.

Can you technically refinance a BBL?

Yes — there's nothing stopping you from taking out a new business loan and using the proceeds to repay your BBL. Since there are no early repayment charges on BBLs, you won't face a penalty for doing so.

However, “can you” and “should you” are very different questions. Any new business loan will carry a market rate — typically 8–18% APR for unsecured lending, or 6–12% for secured. Your BBL is at 2.5%. The arithmetic is stark.

There's also a practical barrier: some lenders are reluctant to lend specifically to refinance a BBL, since the government guarantee doesn't transfer to the new facility. You'd be asking a commercial lender to take on the risk that the government previously absorbed.

When refinancing might (rarely) make sense

There is one scenario where consolidating your BBL could be financially justified: if you have other, significantly more expensive debts that you want to consolidate alongside the BBL.

If you have, say, a merchant cash advance at an effective APR of 50% and a BBL at 2.5%, consolidating both into a single loan at 12% could reduce your total interest cost — depending on the amounts, terms, and consolidation rate.

This is a calculation worth doing properly. Run the numbers for each debt separately, then compare the total cost with and without consolidation. Our exit penalty calculator can help with the individual loan comparison element.

Worked example: BBL vs refinancing

Let's look at a typical scenario. A business has a £30,000 BBL with 48 months remaining on a 6-year term.

Even if the new loan had a lower monthly payment (e.g. via a longer term), you'd be paying significantly more in total interest. The only way refinancing “saves” money is if the monthly saving frees up cash that earns or saves more than the extra interest cost — a very high bar for most businesses.

If you're struggling to repay

If you're finding BBL repayments difficult, the most important thing is to act early. Lenders are required to refer BBL borrowers to the government's breathing space scheme if you're in financial difficulty.

Business Debtline (0800 197 6026) provides free, confidential advice to businesses struggling with debt. They can help you understand your options including PAYG, negotiation with lenders, and formal insolvency processes if necessary.

Remember: BBLs are 100% government-guaranteed. If your business becomes insolvent, you are not personally liable for the BBL unless you provided additional security. This is significantly better protection than most commercial loans.

Frequently asked questions