The Bounce Back Loan Scheme (BBLS) closed officially on 31 March 2021. Launched in April 2020, Government-backed Bounce Back Loans permitted businesses to borrow between £2,000 and £50,000 based on up to 25 per cent of turnover. More than 1.5million loans have been issued by participating banks, worth an overall £46.6 billion with a 100% government guarantee. Loans were issued quickly with little checking, and the government now estimates that up to 60% of the money loaned under the scheme may never be paid back. With repayments now due, or due to start soon, for many loan applicants, here’s an overview of what comes next.
From financial lifeline to mounting debt for many
The length of the bounce back loan was set as six years. Businesses deciding to pay it back early will be able to do so without incurring a fee. For most businesses, the BBLS repayment is due now or will be due shortly. Thankfully there has been some respite given to those businesses still recovering from the pandemic. The Pay As You Grow (PAYG) scheme announced in September grants businesses struggling to repay the loan various options in collaboration with their lender.
- Businesses with a Bounce Back Loan can request a loan extension from six to ten years, with a fixed interest rate of 2.5 per cent.
- Borrowers can request three times during the loan period to reduce monthly repayments for six months by paying interest only.
- Businesses can request to take a single repayment holiday for up to six months.
What happens to businesses that think they can’t repay the loan?
Businesses worried that they may be unable to pay back their loan, should have a conversation with their accountant and their lender. The lender should review the Pay As You Grow options mentioned above. Lenders are likely to want to establish whether the business is viable. This is also a conversation to have with your accountant or financial advisor and you can contact AcuAccounts for any questions regarding business viability and cash flow.
Even if a business is deemed not viable it still remains liable for the loan, despite the government guarantee. The lender might place the business into their debt recovery and collections process. If a business decides to take advantage of any of the Pay As You Grow options, both lender and borrower need to have a clear understanding of how these options will affect future repayments. If a business is considering making Bounce Back Loan repayments but also has other debts to repay, it is vital to make a plan and analyse which repayments should be prioritised – depending on factors like the overall cost of the debt and monthly repayment amounts.
Can a company be liquidated if it has taken out a Bounce Back Loan?
Striking off a business is an option only available to businesses with no company debts. The bounce back loan is considered a company debt and therefore the business cannot be dissolved if the BBLS remains due. Company directors ignoring the interests of their creditors risk finding themselves in the firing line of an Insolvency Service investigation when the company enters liquidation.
If a limited company wants to pursue a company strike off with an outstanding Bounce Back Loan, rather than a formal insolvency route, it risks an “Objection to Company Strike Off Notice” and this can trigger an investigation by the Insolvency Service. If a business becomes insolvent because it is unable to recover from the impact of COVID-19, and cannot repay its loan, liability lies with the company and not the directors or other shareholders. However, this only applies if the directors have complied with their statutory and fiduciary duties, and the loan has been used per its terms and conditions.
How to evaluate financial viability with a Bounce Back Loan?
Aside from the options of the PAYG scheme, it is understandable that businesses might be unable to repay their BBLS, especially if the business was unable to operate for long periods of time. For business owners who are struggling, it is key not to spend all of the BBLS and then look to liquidate.
Directors need to take a long hard look at their company finances and their business model to evaluate, potentially with the help of an accountant, whether the business has a realistic chance of survival and can continue trading.
If a company director believes in a positive outcome, then as well as the PAYG scheme, there are alternative means of finance available like invoice financing and commercial finance. If a company director believes the business doesn’t have a viable future, it could be time to look at closing the company down and entering a formal insolvency process.
Introducing the Recovery Loan Scheme
The Recovery Loan Scheme was announced by the government at the beginning of March 2021 to support access to finance for UK businesses in the process of growing and recovering from the disruption of the COVID-19 pandemic. The Recovery Loan Scheme aims to help businesses of any size access loans and additional finance with up to £10 million available per business. However, the amount and terms offered are at the discretion of participating lenders. The government guarantees 80% of the finance to the lender while the borrower remains 100% liable for the debt.
Loans are available through a network of accredited lenders, listed on the British Business Bank’s website.
Businesses can apply for a loan if the company is trading in the UK and can show that the business:
- would be viable were it not for the pandemic
- has been adversely impacted by the pandemic
- is not in collective insolvency proceedings
Businesses that have received support under the earlier COVID-19 guaranteed loan schemes like the BBLS are still eligible to access finance under this scheme if they meet all other eligibility criteria. Businesses from any sector can apply, except banks, building societies, insurers and reinsurers (excluding insurance brokers), public-sector bodies and state-funded primary and secondary schools.
Businesses can get term loans or overdrafts of between £25,001 and £10 million per business as well as invoice or asset finance of between £1,000 and £10 million. No personal guarantees are taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security. The maximum length of the borrowing facility depends on the type and will be:
- up to 3 years for overdrafts and invoice finance facilities
- up to 6 years for loans and asset finance facilities
The Recovery Loan Scheme scheme is open until 31 December 2021, subject to review.
Do you have questions about your business’s financial future or want to evaluate your loan options? Have a look at our services and feel free to get in touch with us.
You can book a consultation at info@acuaccounts.com or call us directly on 0203 907 9027.
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