When Do I Have to Repay My Bounce Back Loan?

From May 2020 to March 2021, 1.5 million businesses affected by coronavirus borrowed around £46.5bn through the Bounce Back Loan Scheme.

The loans provided had zero interest, and no repayments were due for the first year. With that year now over, those rates have increased to 2.5% and the banks are starting to remind businesses who borrowed money that they need to repay it. So, as a business owner, you might be asking: ‘When do I have to repay my Bounce Back Loan?’

What is a Bounce Back Loan?

Following the start of social distancing and the UK’s first coronavirus lockdown, the Bounce Back Loan Scheme (BBLS) was introduced to allow businesses fast access to government-guaranteed loans provided by certified lenders.

Although another funding scheme (the Coronavirus Business Interruption Loan Scheme) existed before, many business owners found it difficult to acquire funding as it required guarantees (this was later limited to amounts above £250,000).

What if I can’t repay my Bounce Back Loan?

Banks and other accredited lenders provided the Bounce Back Loan Scheme’s funds. The loans were not grants and still need repaying. While restrictions are largely easing, allowing some businesses to reopen, others may find cash flow issues prevent them from repaying their Bounce Back Loans.

Pay as you Grow

In February 2021, the government announced the ‘Pay as you Grow’ (PAYG) initiative, which increased flexibility in the loans’ repayment terms. Among the amendments were the option to delay all payments for six months, pause payments after the first instalment, and make interest-only payments for the first six months.

More information on the Pay as you Grow initiative

What other help is available?

If your business is still unable to repay its Bounce Back Loan, it could indicate deeper-rooted issues within. In which case, you could benefit from additional help.

• Formal repayment arrangements
  If your company’s core business would be viable without its burdensome debts, you can apply for a Company Voluntary Arrangement (CVA). These formal repayment arrangements allow the insolvent company to repay their debts in monthly instalments tailored to what it can afford. The arrangement usually lasts five years, and all remaining unpaid debts are written off at the end.
  More on Company Voluntary Arrangements
• Company restructuring
  If repaying in instalments isn’t a viable way of removing the debt, it may indicate problems at a more structural level. In which case, administration may be more beneficial. Administration sees a licensed insolvency practitioner take control of the company, making the necessary changes to make the company viable for potential buyers.
  More on administration
• Company closure
  If the company’s debt is of such a level that recovery isn’t feasible, you might be better off closing the company via a Creditors Voluntary Liquidation (CVL). The company is protected from creditor pressure and further action while it is closed in an orderly manner.
  Once your company enters liquidation, a Bounce Back Loan is treated as an unsecured debt, meaning it will only be repaid after the company’s secured creditors, those with fixed charges and preferential creditors (including HMRC).
  More on Creditors Voluntary Liquidations

Summary

With it being a year since the Bounce Back Loan Scheme’s (BBLS) launch, the banks and lenders are reaching out to remind the first businesses who received loans that they need to repay. Even with the easing in restrictions allowing certain businesses to reopen, some may still find it difficult to repay without severely disrupting their cash flow. The ‘Pay as you Grow’ initiative intends to help those that need more time to repay, including the option to delay payments or only pay interest for the first six months. If this flexibility still isn’t enough, businesses can seek advice from a licensed insolvency practitioner.