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Bounce Back Loans – Repayment Options

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The bounce back loan scheme (BBLS) has kept many businesses afloat over the past year, but, with the first repayments now starting to become due, many of the 1.5 million businesses that borrowed money could fall into difficulty.

Default position

The BBLS was launched in May 2020, with no interest charged or repayments required for the first twelve months. Bounce back loans are repayable over five years, so 1/60th of the capital is repaid each month, plus the interest accrued for that month, at a fixed annual interest rate of 2.5%. Repayments will therefore reduce over the term of loan as capital is repaid. The first repayment on a £20,000 loan, for example, will be £375.00 (£333.33 capital plus £41.67 interest).

Although loans are guaranteed by the government, banks will be under pressure to recover cash without triggering guarantees. However, since lenders were not permitted to require personal guarantees, even unincorporated businesses are not at risk of having their home or car seized.

Managing repayment

There are various measures that you can take if repaying a BBL is going to cause difficulty:

  • The term of the loan can be extended to ten years so that capital repayments are reduced.
  • You can move to interest-only repayments for a period of up to six months (this option can be used three times).
  • You can pause repayments altogether for a period of up to six months (this option can only be used once).
  • Consider topping up your finances under the recovery loan scheme launched in April, although your existing BBL will be taken into account and you must be able to afford the additional debt.

Your BBL lender will inform you of the first three measures, known as pay as you grow. They will all result in more interest being paid overall. Do let me know if you need advice on how best to deal with repaying your BBL. I can be reached at femi.ogunshakin@nexa.law

Photo by Konstantin Evdokimov on Unsplash

Surviving Winter In the Midst of A Pandemic

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A recent survey of small businesses has revealed that only a quarter of them are confident of their survival into 2021, with many worried about cash flow. Those businesses that took out Bounce Back Loans (BBLs) have already used up most of this funding.

Cash flow

Some two-thirds of businesses are waiting longer to be paid, with a significant number having had their customer payment terms renegotiated to three months or more. As they wait longer for cash to come in, these businesses in turn are withholding payments to suppliers.

If cash flow is an issue, businesses need to view sales and contracts in a completely different light. Payment terms are likely to be more important than short-term profitability.

The latest high-profile corporate collapse will see creditors of the Arcadia Group badly hit. With such giants of the high street unable to survive, it is essential to check a customer’s financial health before going ahead with a large sale or contract.

Coronavirus Business Interruption Loan Scheme (CBILS)

The CBILS is going to be the key to winter survival for many cash-strapped businesses. Now, here’s the really interesting bit; whilst it is not possible to benefit from both the CBIL and a BBL, a BBL can normally be refinanced into a CBILS. The CBILS borrowing limit is £5 million, so considerably more than the BBL maximum of £50,000, and with four times the number of lenders in the CBILS, there is much more choice.

There are, however, some downsides:

  • The government only guarantees 80% of the loan, rather than 100%.
  • Interest rates are set by the lender, rather than a set rate of 2.5%.
  • The application process can be more onerous, rather than just making a self-declaration.
  • Repayment terms are stricter, with, for example, no automatic repayment holiday.

The CBILS runs until 31 January 2021, although, with lenders reporting high levels of demand, don’t wait to apply.

Details of how to apply for a CBILS can be found on the British Business Bank’s website.

 Photo by Matthias Kinsella on Unsplash

Bounce Back Loan Scheme Extended

Written by admin on . Posted in Bounce Back Loans, Budget, Restructuring & Insolvency. No Comments on Bounce Back Loan Scheme Extended

The application date for the Bounce Back Loan Scheme (BBLS) has now been extended to 30 November, and the loan repayment process made more flexible.

To date, the BBLS has provided more than a million loans between £2,000 and £50,000 to businesses affected by the Covid-19 crisis.

Businesses can borrow up to 25% of their annual turnover, subject to a maximum loan of £50,000. Loans are 100% guaranteed by the government and are interest-free for the first 12 months, with no personal guarantees required. After 12 months, the annual interest rate is set at a very attractive 2.5%.

Flexible repayments

The original terms of the BBLS required repayment over six years. The new terms provide for more flexibility:

  • The repayment period can be over ten years, although full repayment can be made at any time without penalty.
  • It will be possible to make interest-only repayments for periods of up to six months. This option can be used three times.
  • A business can suspend repayments altogether for up to six months. This option can only be used once.

What can a loan be used for?

The BBLS was introduced quickly and relied on self-certification rather than extensive credit checks. There is little restriction on what a loan can be used for, so long as it benefits the business.

Even if you are unsure whether additional business finance is required, there is no downside to having the funds sitting unused for a year and then repaying in full. Alternatively, an interest-free bounce back loan could be used to repay existing finance, which is likely to be much more costly.

Additionally, the loan can be used to support your personal income, considering it drawn from self-employment, or remuneration/dividends from a company.

Not surprisingly, the BBLS is expected to result in widespread fraud, with the government unlikely to receive value for money.

The BBLS application process can be found here, along with a link to accredited lenders.

Photo by The New York Public Library on Unsplash