Bounce Back loans - how are businesses coping?
When the UK found itself in the initial grip of a global pandemic last year, the Government introduced a number of support mechanisms to throw a lifeline to businesses struggling to stay afloat amid all the uncertainty. One of these was the Bounce Back loan (BBL), where businesses could borrow up to £50,000 and gain a year’s worth of not interest and no repayments – plus the debt was backed by the Government.
Fast forward a year or so and for some businesses it is now time to start repayments. But where does this leave those companies who are still struggling to recover, especially with “freedom” day having been put back and tensions still remaining with regards to restrictions fully lifting.
There is some respite however with the introduction of the “Pay as you grow” scheme where businesses can choose from three options:
- Extend the loan term for up to 10 years at the same low fixed interest rate of 2.5% – bear in mind that you will end up paying more interest overall unless you can pay the loan off earlier
- Pay back just the interest for up to 6 months – this option will be available 3 times over the course of the loan
- Or take a repayment holiday for up to 6 months but this will only be permissible once during the term of the loan
It’s important to accept that some businesses will legitimately be struggling to repay these loans, but it’s crucial that they try not to spend all the money at once and consider liquidating the firm while these debts are still owed. Directors need to really consider the long term future of the company to assess if they can keep going that little bit longer to come out of this situation the other side. Even though a BBL is classed as an unsecured loan, rebuilding and repairing a business that was once successful could well be a far better option due to the legalities and repercussions of closing the business and there are other means of finance available.
What you use the BBL for is also significant, especially if you were struggling pre-Covid and declared on the BBL agreement that your business was not “an undertaking in difficulty”. If you used a BBL to pay off family lending for example, that’s seen as a “preference” which can be reversed by a liquidator up to 20 years later who could demand this money back from said family member. If you spent the BBL on personal items such as a new car, or a holiday (staycation) this could be perceived as a Director acting irresponsibly, but if you paid off personal debt with it then it could be classed as fraud if you are unable to pay back the loan. It could be deemed as having been stolen from the company making you personally liable for the debt as well as risking being disqualified as a Director of a business. Not the ideal future you would like to see ahead of you.
Speaking to an accountant can help clarify the right path to take, so you have the direction you sorely need to feel confident to move forward. Contacting banks is not always easy with reduced staffing levels so many have enabled business owners to make decisions online through their apps, but take your time and get independent advice first.