Bounce Back loans were a much-needed lifeline for many businesses during the peak of the Coronavirus pandemic. Small businesses especially benefited, as did brick-and-mortar shops on the High Street that saw foot traffic diminish considerably. For many of these businesses, the Bounce Back Loan Scheme (BBLS) was necessary to get them through the lowest points.
However, though the Bounce Back Loan Scheme worked for some, other businesses had suffered such that this scheme simply was not enough. Despite the assistance the BBLS offered, some businesses had no choice but to file for insolvency. One of the key questions in the minds of directors of such companies is simple – can Bounce Back loans be written off?
In this article, Clarke Bell answers this question, breaking down the details of the Bounce Back Loan Scheme and what you can do if you can’t pay it back.
What is a Bounce Back Loan?
A Bounce Back loan was a type of loan offered to businesses during the throes of the Coronavirus pandemic. It aimed to ease the financial pressure felt by these businesses, giving them a lifeline to get through the considerable revenue loss that many faced. Bounce Back loans would start at £2,000, ending at a maximum of 25% of the applicant company’s annual turnover. This is capped at £50,000 and is guaranteed by the UK government.
Bounce Back loans have a maximum term of 6 years. Companies that have taken out a Bounce Back loan will not be expected to pay any interest during the first 12 months. For the remaining duration of the loan, the company will not pay interest in excess of 2.5%, regardless of length.
What you can do if you cannot repay your Bounce Back Loan
Though useful for many companies, Bounce Back Loans simply could not support some companies hit particularly hard by the pandemic. While being impactful for everyone, the extensive restrictions placed on businesses has been a lethal blow for some companies throughout the country. Despite the best intentions of some directors taking out Bounce Back Loans, these restrictions have effectively spelt the end for their companies. With no money left to continue operations, let alone repay creditors, these directors are in a difficult position. That said, it isn’t the end of the line; a few options are available to tackle this situation.
Writing off a Bounce Back Loan
If your company is unable to repay its Bounce Back Loan, your first port of call may be to pursue writing it off. However, this is not so easily done; though the government guarantees the loan, it is given to companies with the expectation that it is repaid. The government will only pay off the loan in the event that repayment is impossible. As such, repayment is still the company’s responsibility, despite difficult financial circumstances.
Though writing off a Bounce Back Loan is difficult, it isn’t impossible. Entering into certain insolvency proceedings can be an ideal way to remedy your situation, and even write off a Bounce Back Loan. A Creditors’ Voluntary Liquidation, for example, can be used to great effect in this situation. This formal insolvency procedure will protect you from legal action being taken against your company, ensure your personal finances are left untouched, and ensure your obligations to creditors are upheld during the liquidation.
At the end of this procedure, any debts that could not be repaid will be written off, including a Bounce Back Loan. For more information on closing a company with a Bounce Back Loan, read our guide on how to do exactly that. Either this procedure or another, such as a business rescue strategy, must be employed to write off a Bounce Back Loan; difficult financial circumstances alone won’t be enough. However, if you would prefer to avoid filing for insolvency, you have a number of alternatives to consider.
Alternatives to writing off a Bounce Back Loan
It was almost a given that some companies would be unable to repay their Bounce Back Loan, despite the support it renders. In light of this fact, the government implemented another scheme to give struggling companies an alternative to closing. This scheme is called the Pay As You Grow (PAYG) scheme, and was part of the Winter Economy Plan introduced in 2020. The PAYG scheme offers companies three main options:
- An extension of up to four years can be requested, bringing the total length of the Bounce Back Loan to ten years. The interest rate remains the usual 2.5%, meaning the only downside to this option is paying a larger amount of total interest.
- A period of six months can be used to make interest-only payments on your Bounce Back Loan. This will mean smaller payments during this time, and it is an option that can be used up to three times throughout the overall term of your loan.
- A period of six months can be used as a payment holiday. This means that you will not be expected to make any repayments whatsoever during this time, lessening the strain on your company. However, it is an option that can be used only once throughout the term of your Bounce Back Loan, though it can be used in addition to the three interest-only payment terms.
The options made available by the Pay As You Grow scheme can be enough to bring a company back to stability. It extends the life of a company’s Bounce Back Loan, while also lessening the costs a company must pay for some periods of time. This financial pressure relief is just that, however, and your company will be expected to repay the full amount borrowed, regardless of whether you make use of these options.
Let Clarke Bell help
If your company has struggled financially during the Coronavirus pandemic, making it difficult to repay your Bounce Back Loan, then let Clarke Bell help. We have over 28 years of experience in helping companies through difficult financial patches, offering professional advice, and assisting with the implementation of solutions. We can do the same for you. Don’t hesitate to contact us for a free, no-obligation consultation, and find out how we can help you today.