The Bounceback loan was a well-needed lifeline for many businesses during the height of the pandemic. But with it now being six months since the repayments began, some businesses are still struggling and unable to meet the financial commitment. If you’re finding it hard to pay back your Bounceback loan, this blog explains your different options.
May 2021 saw the first anniversary of the Bounceback Loan Scheme. With the repayments being expected monthly in arrears 12 months after taking out the loan, it meant that those companies who had taken advantage of it from its inception had to start paying it back, and the majority of companies are now some way in to repaying the debt.
But with the pandemic having had a huge impact on the finances of many businesses, not everyone is in the position to be able to meet the repayments. To help these companies, the Government has put in place some additional measures. The follow up scheme is called “Pay as you Grow” (PAYG).
Under the PAYG there are a number of options that will help struggling companies manage the repayments. The principal options are as follows:
- Extend the length of the original Bounceback loan from the initial 6 years to 10 years
- For a period of 6 months make interest only payments. This option can be exercised for up to 3 times during the entire duration of the loan
- If you’ve already made 6 payments to the loan, you can request a 6 month repayment holiday
There is flexibility within the PAYG scheme as well. For starters, borrowers can choose just one of the options or a number of them together. They can then also repay the loan in full or early, and there are no early repayment charges.
For instance a company could:
- Make interest only payments for a period of 18 months (3 periods of 6 months each) AND
- Change the period of the loan from 6 to 10 years
In this example the monthly repayments would be reduced significantly. HOWEVER: for 18 months no capital would have been repaid AND there would be more interest to pay because of the extension of the loan term.
What happens if I can’t make the repayments even after taking into account the options under the PAYG scheme?
If you’re struggling to make any repayments under the Bounceback Loan Scheme your company may be insolvent, or at least facing severe cashflow problems.
If this is the case, then it may be appropriate to take advice from an Insolvency Practitioner who will be able to tell you the best way to restructure your business, perhaps through a Company Voluntary Arrangement or Administration. This would give the company a breathing space to make a proposal to its creditors in respect of the ongoing trading.
If the Company isn’t viable as a going concern then the best option is Voluntary Liquidation.
Will my Bounceback Loan be written off?
It’s important to remember that the Bounceback Loan was made to the Limited Company and not to you personally.
If the company goes into Liquidation or Administration then in normal circumstances the loan will be written off. If, however, the loan has been used to pay off personal debts, or to pay debts owed to personal friends, then there is the possibility that the Insolvency Practitioner may look at these transactions and you could be made personally liable.
At the start of the process, when applying for the Bounceback Loan, the directors will have stated that the purpose of the loan was in order to continue to trade during the Covid restrictions, and for the vast majority of companies this will have been the case. If it wasn’t then it’s likely that an Insolvency Practitioner may be making a claim against you in person.
Should you have any concerns about your current financial position then please do not hesitate to contact a member of the BLB Advisory team for further tailored advice.