Bounce Back Loans were a key plank in the government’s strategy for supporting SMEs through the Covid lockdown. Payment was deferred for a year, which for many seemed too far ahead to worry about — but we’re now into the second repayment month. So how is it going?
What Were the Bounce Back Loans?
So much has happened since last spring, when the scheme began, that even if you have a loan your memory of its terms could be slightly hazy. Briefly, the scheme went live on 4th May 2020, allowing businesses to borrow anything between £2,000 and £50,000, capped at 25% of their turnover.
The loans were offered by a range of high street banks but guaranteed by the government, who also undertook to pay the first year’s interest. This meant that the business paid nothing for twelve months and was then liable to repay the loan over six years, at a rate of 2.5%.
What’s the Current Situation with Bounce Back Loans?
The Bounce Back Loan Scheme closed on 31st March this year, both to new applications and to top-ups. It’s been replaced by a new government-backed scheme, the Recovery Loan Scheme.
As of June, however, repayments for the first Bounce Back Loans have begun — a fact that is causing problems for some borrowers. The expectation in May 2020, after all, was that we’d be back to business as usual by this time, but the reality has been very different. Although most Covid restriction have now gone, many businesses are still struggling to get back on their feet again, and those repayments that looked so simple a year ago are now hard to meet.
Owners and directors whose businesses can’t pay do have a little respite, since there were no guarantees taken on the loans and there’s no personal liability for company directors. All the same, if your business defaults on its Bounce Back Loan, expect the bank to come after you hard.
What Are the Options if You Can’t Pay?
- The “pay-as-you-grow” option allows you to extend payment time to ten years, as well as taking payment holidays or interest-only periods.
- A Company Voluntary Arrangement allows you and your creditor to negotiate a realistic repayment plan.
- If there’s no other option, a Creditors Voluntary Liquidation allows you to wind up the company in an orderly fashion, meeting all your legal obligations.
The best way of meeting your repayment obligations, however, is to get your credit control into good order, so that you have the funds coming in that you’re owed. If you’re having problems repaying your Bounce Back Loan because of outstanding debts, give me a call to discuss your options.