If you took advantage of the government’s bounce back loan scheme, you may now be having to juggle loan repayments, despite ongoing restrictions on your business.
The Bounce Back Loan Scheme (BBLS)
If you took advantage of the government’s bounce back loan scheme, you may now be having to juggle loan repayments, with an interest of 2.5% a year, even though business has not yet returned to normal in light of extended restrictions in response to the continuation of the pandemic. For those borrowers who are now facing repayments that they cannot afford to pay off currently, it is important to understand the flexibility that they are afforded and what to do if they simply cannot repay their loan.
(Read more about the plethora of support and recovery options offered to businesses over the course of the pandemic here.)
How flexible is the bounce back loan repayment process?
When bounce back loans were first introduced in March of 2020, it was set up under the assumption that trade would be back on track to its pre-pandemic rates after the initial 12 months of no fees or interests for borrowing from the scheme. Of course, many of the smaller companies that this scheme was aimed at are still feeling the strain of continued restrictions, so the government has introduced a new scheme called Pay As You Grow (PAYG), allowing borrowers more time and flexibility for paying back their loan as they continue toward eventually resuming regular trading. PAYG offers three options for companies who are looking for more flexibility when repaying their bounce back loans:
- Borrowers can take a payment holiday for six months once during the term of their bounce back loan. During these six months, no capital repayments or interest payments will have to be made, but interest will continue to accrue over this time. This option should be considered for those who will be in a better position to repay their bounce back loan in the future than they are currently, even if it means paying more in the long run.
- Borrowers have the option to only pay interest for six months up to three times over the course of their bounce back loan term. This will reduce monthly repayments during the months in which only interest is paid back, but will again entail paying more in the long run, as interest will still accrue during this time. Similar to option one, this course of action is aimed at those who will be in a better position to pay off their loan in the future, and who would rather reduce the amount they will repay monthly in the short term in exchange for paying more in the long term.
- Borrowers can request that their loan term be extended from a period of six years to a period of 10 years instead, at the same fixed interest rate of 2.5% a year. Whilst this still entails paying more in the long run due to the accumulation of interest rates, this option, unlike the first two, does not stop or reduce payments for six months only to have them steepen after this period, but instead consistently alleviates the cost of monthly repayments over a longer term.
Is closing my business an option if I am unable to pay off my bounce back loan?
If paying off a bounce back loan simply is not feasible for a company director, even with the alternatives provided by PAYG, then it is likely that their business has reached the point of insolvency, meaning that closing down said business by entering into a liquidation process is viable, as an unpaid bounce back loan is not treated any differently to any other unsecured debt. Upon going into liquidation, unsecured debts typically are not paid back in full and, in the case of a bounce back loan, the loan is secured by the government, meaning that the lender will ultimately have to pursue the government for repayment of its funds. If a business owner wishes to willingly shut down a company with outstanding debts, then this falls under a process called Creditors’ Voluntary Liquidation (CVL), which requires the aid of a licensed insolvency practitioner (IP) to identify the business’ assets in order to repay outstanding creditors in a prescribed order.
If you are struggling with repayment of a bounce back loan and wish to seek confidential advice from an expert, contact Voscap today on 020 7769 6831, or email firstname.lastname@example.org, to speak to one of our business recovery specialists.