During the height of the Coronavirus pandemic, the UK government introduced the Bounce Back Loan Scheme to ease the damage felt by businesses. While certainly effective at offering struggling companies a lifeline, the vast majority of these companies are now required to repay their Bounce Back Loan. As the economic effects of the pandemic were much larger and far-reaching than anyone expected, repaying this loan is easier said than done.
For this reason, many directors are wondering if they can defer their Bounce Back Loan. In this article, Clarke Bell will answer this question, discuss the Bounce Back Loan Scheme, and provide tips for dealing with a Bounce Back Loan.
What is the Bounce Back Loan Scheme?
The Bounce Back Loan Scheme (BBLS) was the government’s answer to the economic effects of the Coronavirus pandemic. Companies could enter into this scheme, receiving a Bounce Back Loan guaranteed by the government with a value of up to £50,000. Although guaranteed by the government, it is still a loan, and recipients are expected to make every effort to repay it. Creditors are also expected to exhaust every avenue to collect their repayment, before the government steps in.
This loan was meant to act as a life raft for companies hit particularly hard by the Coronavirus pandemic and the preventative lockdown measures taken to slow the spread. Recipients could use this cash injection to keep their companies afloat, getting them through the worst of it. However, now that repayment is due, many companies have found that they simply cannot make repayments. To that end, the government has created a new scheme to aid these struggling companies.
Pay As You Grow (PAYG) Scheme
The PAYG scheme was created to help companies that are struggling to repay their Bounce Back Loan. Rather than leave these companies to their fate, this scheme aims to make repayment easier by giving companies more options. It does so in the following three ways:
- Halt repayments for six months – If your company is struggling to keep up with repayments, or requires additional time before starting repayments, then you may take a six-month payment holiday. This is in addition to the 12-month repayment holiday that began when you took out the loan, and can be done once during your loan period.
- Pay over an additional four years – The standard repayment period for a Bounce Back Loan is six years, but for some companies, this can be a strain to meet. If this is the case for your company, you can opt to spread your repayments over a period of ten years, decreasing your monthly repayments in exchange for a longer total repayment term. Additionally, as the interest rate will remain at 2.5%, you will pay more overall if you use this method.
- Six-month interest-only payment window – The final tool at your disposal is to apply for interest-only payments over six months. This option allows you to keep interest down while lessening the strain on your company’s finances. This can be done up to three times during your loan period.
A mixture of these tools can be used to help your company repay its Bounce Back Loan. To find out if you’re eligible for any of the above, contact your lender to find out what options you have available.
Deferring a Bounce Back Loan
As we mentioned previously, it is possible to defer the payment of your Bounce Back Loan. There are several methods available to do this. Naturally, the first begins once you take out your Bounce Back Loan, as it does not require any repayments for twelve months. Secondly, you can use two of the three PAYG options to defer the payment of your Bounce Back Loan.
Opting to defer your repayments completely for six months is one method, effectively granting you a total repayment holiday of 18 months. While certainly appealing at face value, this does have significant implications. Primarily, interest will build up over the course of this six-month period, leading you to pay more in the long run. Additionally, it can only be done once, making it a decent option for companies that cannot hope to adequately make repayments now, but could do in the future.
Also Read: Can You Apply For a Bounce Back Loan Extension?
The second method, the six-month interest-only payment option, has less of an impact on the future cost of the loan. With it, you can create a middle ground between a complete repayment holiday and keeping total repayment costs down. Your interest will not accumulate, keeping your overall costs down while lessening your company’s financial burden. What’s more, it is an option that can be taken up to three times, if needed.
What if I can’t repay my Bounce Back Loan?
Although there are methods available to defer the repayment of a Bounce Back Loan, and others to spread the cost, sometimes a company simply cannot make repayments. In such cases, the company is likely to be insolvent, and liquidation is often the best solution.
Liquidating a company with a Bounce Back Loan
When liquidating a company with a Bounce Back Loan, the best method of doing so is often a Creditors’ Voluntary Liquidation (CVL). A Bounce Back Loan is treated the same as any other loan during liquidation, and the CVL procedure offers insolvent companies significant advantages when handling debt.
A CVL is a voluntary insolvency procedure, which in itself is noteworthy. It confers two main benefits; directors are able to appoint an insolvency practitioner of their choosing to the role of liquidator, and opting for a CVL shows they are willing to act in the interests of creditors. This offers protection from accusations of director misconduct and the consequences that come with it.
Once appointed, the insolvency practitioner will assume control of the company, identifying assets and liabilities, and communicating with creditors. They will then dispose of the company’s assets and empty its accounts, distributing the proceeds amongst the creditors in accordance with the type of loan. Any debt that remains after this process will be written off, including the Bounce Back Loan, if it isn’t repaid. The company will then be wound up and struck off from the Companies House register, ceasing to exist as a commercial entity. The directors are then free to pursue other ventures should they choose.
Clarke Bell can help
If your company is struggling to repay its Bounce Back Loan, don’t go it alone; let Clarke Bell help. We have more than 28 years of experience in helping companies find the most effective solutions to handle their debt, 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 how we can help you.