What is the Bounce Back Loan?
When the Bounce Back Loan Scheme (BBLS) was announced last March it became a lifeline to many businesses trying to weather the COVID-19 storm. The scheme was designed to help small and medium-sized businesses who were losing revenue, and seeing their cash flow disrupted as a result of the COVID-19 outbreak.
The scheme allowed eligible businesses to borrow between £2,000 and up to 25% of their turnover (up to £50,000). The government guaranteed 100% of the loan and no fees or interest were due for the first 12 months, after which a 2.5% interest rate will apply.
Unfortunately, those 12 months have come around quickly and the Bounceback Loan is due for repayment shortly.
Loan recipients will soon be receiving letters in the post from their lenders explaining options for repayment. However, we have outlined some of the options below:
Repayment Options – Pay as you Grow (PAYG)
The Bounce Back Loan Scheme (BBLS) has now closed to new applications and top-up applications as of 31 March 2021.
If you took out a loan last year and your current finances require you to reduce your monthly repayments, you can advise your bank that you want to take advantage of certain ‘Pay As You Grow’ (PAYG) concessions announced by Chancellor Rishi Sunak in the March 2021 budget.
Your options are as follows:
Interest Only Repayments
- You can opt to reduce your monthly payment for six months by paying interest only.
- This option is available up to three times during the course of your Bounce Back Loan.
Payment Holiday
- You could take a payment holiday for six months.
- This option is available once during the term of your Bounce Back Loan.
Extend your Loan’s Duration
- You could request an extension of your Bounce Back Loan term from six to ten years.
- This would reduce your monthly repayments. For example, on a £5,000 loan, monthly repayments would drop from £88.74 per month to £51.75 per month.
Borrowers can use the options above individually or in combination with each other.
Implications of Pay As You Grow (PAYG)
- Borrowers should be aware that they will pay more interest overall if they use one or more of these options.
- The length of the loan will increase in line with any repayment holidays taken.
Depending on your circumstances, it would be prudent to pay back what you can reasonably afford, rather than delay the repayment, this allows you to pay back less money in the long run, your decision will however depend on your business’ individual circumstances. If you are in a position to, there are no penalties for paying back your loan early and you will incur less interest.
For more information on this, visit the .Gov website on the Pay as you Grow scheme.
Failure to Pay & your Credit Score
Uniquely, the government has backed all of these loans 100%, so ultimately if you fail to meet your obligations in repaying the loan you may not suffer any significant repercussions.
You will not have your assets seized, and lenders have been forbidden to ask for a personal guarantee or to claim your vehicle, or your home as repayment of the debt. Your personal credit rating also shouldn’t be affected by being unable to pay back the loan, but your business credit may be affected.
However, it is highly likely that banks will begin to chase unpaid debt in the same way they would any other loan to claw back at least some repayment. Your bank will also point out that failure to repay may affect your credit score.
Rather cryptically, correspondence from High Street banks we have seen regarding the take-up of PAYG options, also includes the following remark:
“Using these options [PAYG] won’t affect your credit score, though it may influence how we assess your creditworthiness in the future…”
You would be forgiven if you were confused by the two contradictory remarks in this sentence.
Help & Advice
Businesses have had a hard time over the past year due to the disruptions caused by COVID-19 and some support options may still be available to you to help you through. For more information regarding some of the other support schemes for businesses or individuals, you may find useful guides on our resources page.
If you would like to make the most of your Pay As You Grow options, but need advice based on your specific circumstances and financial position, get in touch with a member of our team to discuss the options.
Give us a call on 01452 812 491, or send an email to info@pricedavis.co.uk.