At the onset of the coronavirus pandemic, small-to-medium-sized businesses were offered a lifeline in the form of a Bounce Back Loan to overcome unprecedented economic challenges that showed no signs of abating.
As consumer behaviour switched overnight as a result of stay-at-home restrictions and national lockdowns, essential income streams erased overnight. This called for the urgent introduction of the Coronavirus Job Retention Scheme (CJRS) and accelerated the number of Bounce Back Loan applications.
As of 31st May 2021, the value of Bounce Back Loan facilities approved, including top-ups, totalled 47 billion. The small-to-medium business population in the UK ranked at 6 million in 2020, equivalent to 99% of businesses. As the viability of UK businesses was at substantial risk, the ‘Pay as you Grow’ scheme was unveiled to offer payment relief to businesses, in addition to existing terms that required no principal repayments for the first 12 months of taking out the loan.
As many borrowers now prepare for Bounce Back Loan repayments to begin, we run through what support is available for businesses that are yet to bounce back from the notorious cycle of financial disruption instigated by Covid-19.
What support is available if I can’t afford to repay my Bounce Back Loan?
If your business is yet to return to normal trading, you may require more time to raise funds for Bounce Back Loan repayments, as the Pay as you Grow scheme offers.
Pay as you Grow
The following Pay as you Grow options may provide the flexibility and breathing space you require, available 60 days before your first repayment is due.
- Interest-only payments – You can make interest-only payments for six months. This option is available three times during your Bounce Back Loan term
- Payment holiday – You can take one six-month payment break in the form of a payment holiday during the term of your Bounce Back Loan
- Extend loan term from six to ten years – If you wish to spread payments over a longer period, you can request a loan term extension at the same interest rate of 2.5%
You should take note that interest will continue to accrue during payment holidays and therefore your overall loan amount will increase.
Company closure and rescue options
If your business is beyond rescue, you may pursue a formal insolvency procedure under the guidance of a licensed insolvency practitioner to close your business. Alternatively, a company restructuring solution may prevent your business from further deteriorating and protect creditor interests.
Creditors’ Voluntary Liquidation (CVL)
If your business is insolvent, you may voluntarily close your limited company by appointing a licensed insolvency practitioner to administer the process and settle creditor affairs.
When liquidating your limited company, you will not be held personally liable for the Bounce Back Loan as 100% security was guaranteed by the government to BBL lenders, providing the loan was used in the prescribed manner.
If your business is under pressure from creditors and therefore at risk of a winding up petition, it may be wise to act fast to minimise the risk of compulsory liquidation. Dissolving a limited company with an outstanding Bounce Back Loan is not possible as this route is reserved for businesses with no liabilities.
If your business can be rescued and holds substantial asset value, it may enter administration to enable restructuring without the threat of legal action. While your business is in administration, a licensed insolvency practitioner, also administrator, will drive efforts to streamline the business and maximise creditor returns, with a view to avoiding company liquidation.
Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a formal restructuring procedure that enables you to negotiate an affordable payment plan with creditors, typically lasting 3 to 5 years. Alternatively, a Time to Pay arrangement can give you more time to make payments to HMRC.
If your business requires a cash injection to overcome temporary cash flow worries or facilitate growth, company finance may be available, subject to the financial health of your business and affordability. From invoice finance, asset finance, to business loans, a finance broker can help source a competitive deal through a selected panel of lenders.
If you are struggling to repay your Bounce Back Loan, speak to us here at Blue Spire, or a licensed insolvency practitioner to explore immediate company rescue options.
Keith Tully is a partner at Real Business Rescue, one of the UK’s largest company liquidation and restructuring specialists. Keith is an insolvency expert with 40 years of experience and is dedicated to supporting company directors in financial distress as a result of Covid-19, including outstanding Bounce Back Loans.
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