Around 1.56 million UK businesses applied to the Bounce Back Loan Scheme (BBLS), one of several government measures to support companies struggling to remain viable during the pandemic.
Loans were available up to £50,000 without a personal guarantee and with no repayment required for the first year - the government paid the interest for the initial 12-month period.
While the initiative proved successful and prevented numerous insolvencies, many businesses have found that trade hasn't recovered as quickly as they hoped and might now find the repayments problematic.
Today we'll talk about action plans, strategies and options if you have a Bounce Back Loan and are concerned about your ability to keep up with the repayments.
Bounce Back Loan Repayment Terms
Bounce Back Loans have a six-year term, with fixed interest charged at 2.5%, payable by the business from month 13. Companies need to start making repayments every month directly to the loan provider.
Some of the earliest applicants have found things particularly challenging. When the scheme was first announced, nobody could have envisaged that lockdown restrictions would remain in place over a year later - just as the recipients were expected to begin repaying the debt.
The government unveiled an amendment in September 2020, as this issue came to light.
Pay as You Grow (PAYG) allows businesses to defer repayments or take payment holidays. Options include:
- Extending the loan term from six to ten years at a fixed 2.5% interest rate.
- Reducing monthly repayments to interest only for six months.
- Applying for a six-month repayment holiday.
You can use all of these options together and apply straight away to your provider if you are worried about your repayments or are under cash flow pressure.
Liability for Bounce Back Loan Defaults
We would steer you towards the above opportunities to reduce repayment values and defer payments for up to six months as a first option.
Directors were not asked to sign guarantees to take out a loan. The government secured BBLS lending, so business owners are not personally liable for repayments. However, you cannot fail to repay the debt because government security only applies if the business enters liquidation.
If the reduced repayments are still unachievable, the key is to seek professional financial advice to put an appropriate strategy in place to help you keep up with your obligations without experiencing further difficulties.
The correct approach will depend on your circumstances but may comprise:
- Negotiating with all creditors to try and achieve greater repayment flexibility.
- Applying for a Time to Pay agreement with HMRC to help you pay back tax arrears in stages.
- Entering into a Company Voluntary Arrangement (CVA); a payment plan that businesses use to restructure high debt levels.
You might also be able to refinance existing credit outside of a Bounce Back Loan, moving away from heavier interest rates.
Dealing With Potential Insolvency
Companies that cannot recover may become insolvent. In this case, you should follow formal liquidation processes and work with a qualified insolvency practitioner to guide you through and ensure you have closed the business correctly.
However, this is the last resort and often avoidable with millions of companies in a similar predicament, needing to balance rising costs, slower trade and the long-term impacts of inflation, supply shortages and material scarcity.
The worst response is to ignore cash flow problems or hope that trade will pick up and allow accounts to fall further and further into arrears without looking at ways to streamline your company or restructure your debt.
Please get in touch with SAS Accounting at any time if you are anxious about your Bounce Back Loan or have concerns about maintaining repayments for any debt obligations.
There is usually a solution, and we will endeavour to recommend proactive ways to restructure or signpost clients to insolvency experts where necessary.