Are you worried about repaying your Bounce Back Loan?

26th January 2021 News CHW Accounting

The Bounce Back Loan Scheme (BBLS) was launched because of fears small businesses couldn’t access coronavirus funding quickly enough and enabled businesses to obtain a six-year term loan (later extended to 10 years) at a government set interest rate of 2.5% a year.

We are currently receiving some enquiries regarding the repayment of these loans and what might happen in a situation where the business is unable to pay.

BBLS – a quick summary

• The loans were handed out with very generous terms compared to any other commercial borrowing
• First 12 months of interest paid by government, then 2.5% pa interest
• Repayments deferred for 12 months
• Businesses can borrow between £2,000 and £50,000 – the amount is capped at 25% of total turnover (usually for calendar year 2019, or new businesses can estimate)
• The deadline for applications was originally 30 November 2020, which was first extended until the end of January 2021, and then until 31 March 2021

The BBLS opened for applications on 4 May 2020 so, for those early borrowers, the 12-month repayment deferral will end in a few months’ time.

Your business took the loan but hasn’t yet spent the money – what are your options?

With the country in lockdown again with no indication as to when it will end, and with some sectors of business not yet feeling the full impact you should ask yourself if the borrowing might be needed at some point in the future.

If the answer is ‘yes’ or ‘maybe’ then you are unlikely to find cheaper funding anywhere else, so our advice would be to hold onto it. The interest on a £50k Bounce Back Loan is just over £100 a month with no personal guarantees.

If the answer is ‘no’ then you have options. You could:

• Pay it back to avoid unnecessary liabilities on your balance sheet and save the interest costs.
• If you have used some of the money, you can repay any unused loan, so you are only paying interest for the funding that you actually need.
• Spend it on your business – If there is a genuine opportunity to expand or improve your business, this could lead to generating more income/improving your profits, with which you can repay the loan.
• Invest it elsewhere – You could invest some or all of your loan money, to provide enough return to cover the interest.

Bear in mind though that should your company fail and enter formal insolvency (e.g., liquidation or administration), the use of a BBL for non-business expenditure may be demanded back by the insolvency practitioner.

The loan has been spent but the business is still failing – what are your options?

This is understandable and sadly not uncommon in the current environment. Well-run businesses have and will unfortunately continue to fail at no fault of the owners.

In this situation there is no consequence for the director/owner as long as the money has genuinely been used for wholly business purposes.

However, if the money has been used for non-business purposes, it will be a different story. The guidelines have not yet been been specified, but we expect repayment demands/increased taxes and director disqualification in this situation.

If your business is struggling and/or you are concerned that you will not be able to repay your Bounce Back Loan, please contact us for a free, no-obligation and confidential chat.

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