The government introduced bounce-back loans amid the coronavirus pandemic to help small to medium-sized businesses stay afloat during the uncertainty of trade during the lockdown. Loans ranging anywhere from £2000 to £50,000 were granted to SMEs to help cover finances such as staff wages, rent and business rates, or monthly business costs and overheads. With the first 12 months of interest being covered by the government, after which interest stands at 2.5% per year, the loan came with favourable terms. Since the closing of the BBL scheme on March 31st, 2021, and the 18-month interest-free is coming to an end for a lot of borrowers, a new fear for many of these businesses is the repayments of the loan plus interest. It’s predicted that around 40% of borrowers can’t repay their bounce-back loan.

Here are a few paths you may be able to take if you can’t repay your bounce-back loan:

Pay As You Grow (PAYG):

The Pay As You Grow (PAYG) scheme outlines 3 routes directors are able to take. In addition to the first-year payment holiday when the original loan was issued, borrowers are able to postpone repayments for 6 months. Secondly, you can adapt the original terms of the loan from 6 years to ten years, enabling monthly repayments to be cut in half. Finally, borrowers may request to make interest-only payments for 6 months thus reducing the overall monthly payment which can make a significant difference in your cash flow during this period. This would also ensure no additional interest would need to be paid, similar to that of taking a payment holiday.

Liquidation:

If the above routes have been exhausted and you still find your company is unable to repay the BBL, the next step would be to consider a full restructure of the company’s debt and costs via an insolvency mechanism. If a company is no longer considered viable, it maybe placed into voluntary liquidation. During this process, the responsibility of directors is to the creditors rather than shareholders. A licensed insolvency practitioner needs to be appointed to sell business assets, repay creditors, and close the company down. Due to bounce-back loans not being guaranteed by directors, they can only be repaid from the company’s assets. What this means is that the lender will pursue the government for repayment. Essentially, the loan is written off when your company is placed in liquidation!

Still need some advice on paying back your bounce-back loan? Contact McKay Business Solutions and speak to a qualified insolvency practitioner!