The government-backed Bounce Back Loan Scheme was introduced in May 2020 to help small businesses access the finance they need to survive the impact of coronavirus. The scheme offers loans of up to £50,000, with a repayment period of up to six years. The loans are 100% government-backed, meaning that if you default on the loan, the government will cover the cost.
The scheme has been a lifeline for many small businesses, but there are some drawbacks. The main downside is that the interest rate on the loans is 2.5%, which is relatively high compared to other forms of financing. Moreover, the loans are not always easy to obtain, and businesses must meet strict criteria in order to be eligible. Nevertheless, the scheme has helped countless small businesses stay afloat during these challenging times
As we approach the one-year anniversary of the Bounce Back Loan scheme, it’s worth taking a moment to reflect on how this novel programme has helped businesses across the UK weather the storm of the pandemic.
- 1 I cannot afford the monthly Bounce Back Loan repayment amount – can I reduce this?
- 2 How can the Pay As You Grow (PAYG) Bounce Back Loan scheme help?
- 3 What will happen to me if I cannot pay my Bounce Back Loan?
- 4 What are the options for restructuring my limited company with a Bounce Back Loan?
- 5 Can I close my business with a Bounce Back Loan?
- 6 How do I know if I have misused Bounce Back Loan funds?
I cannot afford the monthly Bounce Back Loan repayment amount – can I reduce this?
The scheme was launched in May 2020, in the midst of the first lockdown, as a way to provide quick and easy access to finance for small businesses. And it did just that: over 1.6 million businesses have borrowed a total of £38.1 billion through the scheme so far.
If you’re struggling to afford the monthly repayment amount on your Bounce Back Loan, there are a few things you can do. First, you should contact your lender to explain the situation and see if they’re willing to work with you.
Many lenders are understanding and may be able to offer a deferment or modification to your loan. If that’s not possible, you might be able to consolidate your debt with a personal loan or balance transfer credit card.
This can help reduce your monthly payments and give you some breathing room. Finally, make sure to create a budget and stick to it. This will help you get your finances back on track so you can avoid defaulting on your loan.
As lenders are now more aware of business owners struggling yo make repayments, the government have stepped in, the government has introduced a scheme known as Pay As You Grow (PAYG) which is designed to help those businesses who need additional help and longer time period to repay their Bounce Back Loan.
How can the Pay As You Grow (PAYG) Bounce Back Loan scheme help?
The PAYG scheme is designed for businesses that have taken out a Bounce Back Loan, it offers three different ways of reducing the monthly financial burden if they are struggling to find the money to repay what they owe. If you be in a situation where you cannot afford to repay your Bounce Back Loan, here is what you should know about the PAYG scheme:
1. A delay of making repayments for six months. This is on top of the first-year payment holiday which you will have been given when you took out the Bounce Back Loan. You do not need to have made any repayment towards your Bounce Back Loan in order to qualify.
2. The term of the Bounce Back Loan can be extended from six years to ten years. By doing this, you can halve your monthly repayments which could make a huge difference to your cash flow during this time.
3. Offer to make interest-only payments for six months. This will lessen the amount of your monthly repayment for these months, while also ensuring you are not paying any additional interest as you would if you took a payment holiday.
What will happen to me if I cannot pay my Bounce Back Loan?
The government hoped that the flexibility offered by the PAYG scheme will give some companies breathing space it requires so they can make their repayment on their Bounce Back Loan, for some though, this will simply not go far enough.
A bounce back loan may just be one of several loans or finance agreements the company has, and it is trying to repay, and making a situation worse. What happens if your company is unable to pay the Bounce Back Loan, can you be held personally liable for this debt?
If you are unable to pay your Bounce Back Loan, there are a few things that could happen. First, your loan will likely go into default. This means that you will no longer be able to make payments on the loan, and the entire balance will become due immediately. The lender may then attempt to collect the debt through traditional methods such as phone calls, letters, and even legal action.
If you are still unable to pay off the loan, the lender may ultimately decide to write the debt off as a loss and claim on the government guarantee. One benefit of the Bounce Back Loan was that the government provided the banks with 100% security for the money they lent to businesses
To put this in prespective, this meant that no personal guarantee had to be provided to secure the borrowing unless you are a sole trader.
With this knowledge company directors should be comfortable, but they need to be aware that this government guarantee will only come into effect once the company is declared insolvent. This means if your company is trading and active on the companies register at Companies House, you remain responsible for repaying the Bounce Back Loan.
What are the options for restructuring my limited company with a Bounce Back Loan?
If your business is struggling with repayments of its bounce back loan but you believe it is a viable business there maybe some restructuring or refinancing options available to the company.
Government provided assistance like the bounce back loan may just be one of several debts the company is repaying. One option is to enter into negotiations with your creditors in order to lower your monthly outgoings to a more affordable level.
The Time to Pay (TTP) arrangement is a payment plan that allows businesses and individuals who owe money to HMRC to spread their payments over an agreed period of time. The TTP arrangement is a flexible and informal agreement, and is not legally binding. However, if you miss a payment or break the terms of the agreement,
HMRC may take action to recover the debt, including using enforcement agents or taking legal action. If you’re struggling to pay your tax bill, you can contact HMRC to discuss your options. If you reach an agreement, HMRC will usually give you up to 12 months to pay your debt.
The TTP arrangement is not suitable for everyone, and you should only consider it if you’re confident that you can make the agreed payments. If you’re unsure whether the TTP arrangement is right for you, you can seek advice from a qualified accountant or financial advisor
If your company is struggling with a number of business loans, credit cards, and supplier debts, there is a formal process known as a Company Voluntary Arrangement (CVA) this process may be more appropriate.
A Company Voluntary Arrangement, or CVA, is a legal agreement between a company and its creditors. The arrangement is typically used as a way to restructure the company’s debt and avoid insolvency. Under a CVA, the company agrees to make regular payments to its creditors over a period of time.
The payments are usually made from the company’s profits, but they may also be made from other sources of income such as asset sales or new investment. In exchange for these payments, the creditors agree to accept less than the full amount of their claims. CVAs are often used as an alternative to insolvency proceedings, such as administration or liquidation.
They can also be used in conjunction with these proceedings, for example where a CVA is used to repay creditors in full prior to the commencement of administration.
Can I close my business with a Bounce Back Loan?
If you was to close your business and use a liquidation process, then a Bounce Back Loan is treated in the same way as any loan or finance agreement. The company will become insolvent and then enter into a formal liquidation process, the Bounce Back Loan will be included.
Creditors’ Voluntary Liquidation (CVL) is a insolvency process whereby the company is wound up and its assets are sold off to repay creditors. CVL is also known as “members’ voluntary liquidation”. It is generally used when a company is no longer able to pay its debts and wants to avoid going into compulsory liquidation. The main advantage of CVL is that it gives the directors more control over the process than if the company goes into compulsory liquidation.
Another advantage is that, unlike in compulsory liquidation, the directors can continue to trade the company while it is in CVL. This can help to maximise the value of the company’s assets for the benefit of creditors. The main disadvantage of CVL is that it can be more expensive than other insolvency processes, such as administration. This is because the directors must pay for the services of a licensed insolvency practitioner (IP). If you are considering CVL for your company, you should seek professional advice from an experienced IP.
A licensed insolvency practitioner (LIP) is a professional who is licensed by the government to provide insolvency services. Insolvency refers to the inability of an individual or organization to repay their debts. LIPs typically work with individuals who are facing personal bankruptcy, and with businesses that are facing corporate bankruptcy.
In both cases, the LIP’s goal is to help the debtor restructure their finances in order to avoid insolvency. This may involve negotiating with creditors, developing payment plans, or overseeing the sale of assets. LIPs also provide advice on how to avoid insolvency in the future. As such, they play an important role in helping individuals and businesses get back on their feet after experiencing financial difficulty.
How do I know if I have misused Bounce Back Loan funds?
Bounce Back Loans were launched in order to provide as much help to as many businesses as possible. As every company was facing its own challenges at the time, one of the rules was that it stated that the loan must be used to provide an economic benefit to the business.
This was the main criterion for the loan, therefore it was not meant for personal use. Those found guilty of misusing their bounce back loan could be held personally liable for repaying them should the company be unable to do so.
If you have used the loan for personal expenses or investments, you have misused it. If you are unsure whether or not you have misused your loan, you should speak to your lender as soon as possible. They will be able to give you more information and help you figure out a plan to repay the loan if necessary.
If you would like to talk though your options or just worried that you cannot afford to repay your bounce back loan, simply complete the online require or contact us on the number at the top of the page.