Although Bounce Back Loans were incredibly useful for many companies during the height of the Coronavirus pandemic, they were not a financial cure-all. Some companies were able to use Bounce Back Loans to keep afloat, while for others, they simply weren’t enough. If your company falls into the latter category, and is struggling to repay its Bounce Back Loan, you might be wondering what you can do now.
In this article, Clarke Bell will discuss how you can extend your Bounce Back Loan’s repayment term, and the implications of doing so.
What is a Bounce Back Loan?
Bounce Back Loans were offered to companies as part of the Bounce Back Loan Scheme (BBLS). The purpose of these loans was to support companies through the worst of the Coronavirus pandemic, which caused considerable financial damage to companies and individuals across the UK. Without assistance, it is likely that many more companies would have gone not out of business.
To support struggling companies, the government offered a loan of up to 25% of a company’s annual turnover, capped at £50,000. This loan was completely guaranteed by the government, not requiring any form of security or personal guarantee from the borrower. Repayment would begin 12 months after the loan was received, with a fixed interest rate of 2.5% per year. Moreover, the application process for a Bounce Back Loan was straightforward and able to be submitted online. This made Bounce Back Loans very accessible, allowing companies to easily receive financial aid.
Though the terms were quite favourable for any borrower, the pandemic and lockdown measures lasted much longer than anyone expected. This, coupled with the many companies that took a Bounce Back Loan they could not afford, resulted in many being unable to make repayments.
How you can extend your Bounce Back Loan
Thanks to the Pay As You Grow Scheme (PAYG), your company can make repayments as it recovers from the effects of the pandemic. This scheme was introduced to give companies that were struggling to repay their Bounce Back Loan some flexibility in making the repayments.
Under the Pay As You Grow Scheme, you can apply to extend the repayment term of your Bounce Back Loan from six years to ten. In addition to an extension, you can also adjust your repayment agreement in other ways. For companies that are finding repayments particularly difficult, interest-only payments can be made for several months. Companies can even apply for a six-month repayment holiday, though this will only be given to companies that have been hit especially hard by the pandemic.
Also Read: The Complete Guide To Bounce Back Loans
What are the implications of extending a Bounce Back Loan?
The main implication is that you will pay off your Bounce Back Loan over a longer period of time. This means that you will have to pay a larger sum overall, due to interest applying to ten years rather than six. However, your monthly repayment amount will be lower, as it is spread out over a longer period of time. This can have an incredibly positive effect on your cash flow, as your company retains more money that can be used to facilitate recovery and growth.
Extending your Bounce Back Loan repayment term will also give you more time to consider your options. If your company is struggling to pay its liabilities, you should consider closing the company down. If this is the case, you need to speak to your accountant and / or an insolvency practitioner to make sure that you pick the best option for you and your company.
If you can extend your Bounce Back Loan repayment term, you can consider whether continuing operations is viable, without risking default and having the decision taken out of your hands.
What to do if you cannot repay your Bounce Back Loan
If your company cannot repay its Bounce Back Loan, or any other of the debts it has, it means that it is insolvent. In this situation, you should speak to your accountant and / or an insolvency practitioner as soon as possible.
The best option is often to put your company into liquidation with a Creditors’ Voluntary Liquidation (CVL). This formal insolvency procedure affords significant advantages to a company and its directors. As a CVL is voluntary, the company directors can appoint their choice of an insolvency practitioner to deal with the liquidation. They will ensure that your company is liquidated following all the relevant insolvency regulations.
With a CVL, creditors cannot take legal action against your company, meaning you are safe from compulsory liquidation once the procedure begins. Moreover, any business debts are written off in the CVL – assuming that you haven’t signed a personal guarantee as part of a loan agreement – and this includes Bounce Back Loans, provided it was used correctly.
Clarke Bell can help you
If you are struggling to pay back your Bounce Back Loan, or any other liabilities, Clarke Bell can help you.
We have more than 28 years of experience in successfully helping directors to deal with their company’s financial difficulties. We can do the same for you.
Our specialist insolvency team can help you to find the best solution for your situation, whether it be liquidation or another means.
For a free, no-obligation consultation, contact us today and find out how we can help you.