The UK government implemented the Bounce Back Loan Scheme to assist companies enduring the economic effects of the Coronavirus pandemic. The scheme aimed to provide financial assistance to companies hit particularly hard, acting as a safety net to get companies through the worst of it. However, though useful at the time, repayment for these loans has now come due.
If your company, like many, is struggling to repay its Bounce Back Loan, you could apply for a Bounce Back Loan extension. In this article, Clarke Bell will discuss how you can do exactly that, the implications of doing so, and what to do if you can’t make repayments.
What is the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme was introduced during the height of the Coronavirus pandemic. It provided loans to companies struggling with the effects, offering up to £50,000 depending on a company’s income. Moreover, the government guaranteed the loans, making Bounce Back Loans a less risky option than other types of business loans. Despite being guaranteed by the government, these loans were just that…loans, and there was an expectation of repayment. Companies were expected to make every effort to repay their Bounce Back Loan, and lenders were equally expected to exhaust all other methods of collection before the government would get involved.
Repayment of a Bounce Back Loan does not start immediately. Once you receive your loan, you will have a repayment holiday of 12 months, meaning you won’t have to pay a penny during this time. However, making some repayments is a good idea, as doing so will reduce the amount of interest you pay overall. If you cannot make repayments at all, even after these 12 months have elapsed, there are tools at your disposal that can make repayment easier.
Extending a Bounce Back Loan under the Pay As You Grow Scheme
If you are struggling to repay your Bounce Back Loan, the Pay As You Grow (PAYG) scheme exists to offer additional support. The government implemented this scheme after it became clear that many companies had, and continue to have, difficulty making loan repayments. Rather than leave these companies to potentially collapse, the scheme offers three main tools to directors, each capable of lessening the financial strain faced by companies attempting to make repayments. Of these three tools, one provides the means to extend your Bounce Back Loan repayment term.
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Extending your Bounce Back Loan from six to ten years
One of the options under the PAYG scheme is to extend your Bounce Back Loan repayment term from six to ten years. By taking this option, your company will see significantly less strain on its cash flow, with monthly payments dropping by almost half. This could be a good solution for your company, but it isn’t without its downsides. As the loan is extended for an additional four years, this means an additional four years of interest payments, too. Naturally, this will increase the overall amount your company pays, even if the monthly repayments are considerably lower. If this doesn’t make financial sense for your company, then perhaps one of the other two tools in the PAYG scheme could be more suitable.
Also Read: Is It Possible To Defer a Bounce Back Loan?
Six-month repayment holiday
The second option offered by the PAYG scheme is to take a six-month repayment holiday, essentially extending your Bounce Back Loan for this time. This is exactly how it sounds; if you choose this option, you will not be required to pay a penny for a period of six months. Combined with the additional 12 months, this means 18 months of your Bounce Back Loan term will not require you to make any payments whatsoever. However, this option suffers from a similar problem to the previous option. Namely, interest during this period will continue to accrue, causing you to pay more in the long run.
Six-month period of interest-only payments
The final tool available to directors in the PAYG scheme is to make interest-only payments for six months. This option doesn’t have as large an impact on your cash flow as the previous options, but in exchange, you will keep interest from accruing. What’s more, this option can be taken three times during your Bounce Back Loan, making it a bit more flexible than the other options. However, though not as pronounced as the other options, interest-only payments will still cause you to pay more in the long run.
What should I do if I can’t repay my Bounce Back Loan?
If you can’t repay your Bounce Back Loan, even with the help of the PAYG scheme, your company is probably insolvent. This means you should act swiftly to avoid creditors attempting to force your hand and submit a winding-up petition. In such a position, liquidation is likely to be your best bet.
Liquidating a company with a Bounce Back Loan
When liquidating a company with a Bounce Back Loan, or any insolvent company in general, the best method of doing so is often a Creditors’ Voluntary Liquidation (CVL). It is a formal insolvency procedure, allowing directors to voluntarily liquidate their company, providing them with several key benefits. Firstly, directors will be able to appoint an insolvency practitioner of their choosing, unlike in compulsory liquidation. This insolvency practitioner will take on the role of a liquidator, and will identify company assets, liabilities, and communicate with all associated parties. They will then dispose of the company’s assets, empty accounts, and distribute the proceeds amongst company creditors. After, the company will be wound up and cease to exist.
In addition to an efficient method of closing, the CVL procedure offers major legal protections to a company and its directors. Once underway, creditors will not be able to take legal action against the company, protecting it from a winding-up petition and the following compulsory liquidation. Moreover, any debts that remain outstanding after the procedure will be written off, including a Bounce Back Loan if it could not be repaid. Directors will not be expected to repay these debts from their personal finances, assuming no personal guarantees were signed.
Clarke Bell can help
If your company is struggling to repay its Bounce Back Loan, let Clarke Bell be there to help. We have more than 28 years of experience in helping companies deal with their financial problems, and we can do the same for you. Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.
