Bounce Back Loan Facts
The Bounce Back Loan Scheme (BBLS) was initially designed to help out struggling businesses during the coronavirus pandemic…although you wouldn’t necessarily have guessed that right now!
While some businesses were able to use the BBLS to push forward, others left themselves in a financial pickle. Here are 10 Bounce Back Loan facts!
Bounce Back Loans (BBLS) were introduced in March 2020 to help out struggling businesses. This period was the start of the first lockdown and that meant it was also the start of a really tough time for a lot of business owners, particularly those who worked in sectors such as hospitality.
Essentially, they offered a big lump of short-term cash that could have been used to fix some glaring financial concerns or it could have been invested with a view to long-term future planning. This amount of cash varied from £2,000 to £50,000. However, the amount that you could borrow was capped at 25% of your turnover from the previous year, or your estimated turnover.
Businesses that hadn’t already borrowed the full amount could also “top-up” their initial loan. The minimum amount that you could add onto the initial loan was £1,000.
Bounce Back Loans were completely backed by the state and required no repayments or interest within the first 12 months. After 12 months, banks charge a fixed 2.5% annual interest on top of their initial loan.
The BBLS has given out £46-billion since it came into action, helping millions of people in a time of crisis.
Pay As You Grow can offer help
The BBLS works with another governmental scheme, amusingly called Pay as You Grow (PAYG): a scheme designed to help borrowers with their repayments.
You can have that if you don’t make repayments extended to 18 months but banks will still start charging interest after 12 months anyway, so this option is really only for people in a bad financial difficulty.
These loans can last for up to 10 years with a fixed 2.5% interest rate annually, after that first year. The reason for this was to cut monthly repayments by almost half of what they could have been, allowing borrowers a more sustainable way of making their repayments.
Statistics in April showed that more than 1.5 million UK businesses benefited with the bounce back loan as they looked to counter their financial struggles.
Pay As You Grow has 3 solutions
The PAYG scheme allows a company who has taken out a Bounce Back Loan, three main ways of reducing the monthly financial burden if they are struggling to find the money to repay what they owe. If you cannot afford to repay your Bounce Back Loan, here is how the PAYG scheme could help:
- The chance to delay repayments for six months. This is on top of the first-year payment holiday which you will have been given when you took out the Bounce Back Loan. You do not need to have made any repayment towards your Bounce Back Loan in order to qualify.
- You can lengthen the term of the Bounce Back Loan from six years to ten years. By doing this, you can halve your monthly repayments which could make a huge difference to your cash flow during this time.
- You can ask to make interest-only payments for six months. This will lessen the amount of your monthly repayment for these months, while also ensuring you are not paying any additional interest as you would if you took a payment holiday.
Bounce Back Loans are unsecured debts
The PAYG scheme is designed to offer a little bit of wriggle room for those who might not be completely on top of their payments. Making repayments might still feel like a step too far for many. However, there are ways around this.
One of the main benefits of the BBLS is the fact that the loan itself is unsecured. This means that the loan is taken out without any collateral such as property. We wouldn’t necessarily advocate unsecured loans but, in this instance, it might be beneficial because it comes with government guarantee because they gave 100% security to the banks for these loans. However, government backing only comes into play if a business is declared insolvent, so a trading business that is still in operation will still have to pay the money back themselves.
Therefore, while company directors should feel a little relief, they should also be aware that governmental intervention is very much the last case scenario. They will still be expected to make repayments unless the situation gets very desperate.
A Bounce Back Loan can help you with other debts
As noted at the start, many businesses will see the BBLS as an opportunity to invest in their future. With this in mind, you might be able to come to an arrangement with HMRC. These are called Time to Pay (TTP) arrangements. You could be granted an additional 12 months to keep on top of your payments if you are able to put together a convincing cashflow forecast, highlighting where you believe you’ll be making your profit.
Some businesses may be juggling a series of loans alongside their BBL and, in that instance, a Company Voluntary Arrangement (CVA) could be the best solution. The CVA will allow a debtor to make a single monthly payment towards your creditors for a set number of years. Only a licensed insolvency practitioner can sanction your CVA and it will also have to get the consent of your creditors. You will need to provide a thorough plan that your creditors can get behind.
Insolvency swallows a Bounce Back Loan
If your business goes through liquidation then the BBL will work in the same way as any other loan that was taken up in that time. This means that should the company become insolvent and needs to enter a formal liquidation process, the BBL will be included.
There are two ways to push through with insolvency:
- A creditor forces you into liquidation but this is a long process, including a court case.
- Directors can push through the liquidation of the company themselves. This is known as a Creditors Voluntary Liquidation (CVL).
A licensed insolvency practitioner will go through the entire process. This means that they will identify company assets, sell off those assets for the benefit of creditors, and they will organise the whole procedure on your behalf.
The final result of the liquidation is that the company will no longer exist as a legal operator, and any debt remaining from this point forward will be written off unless it has previously been secured with a personal guarantee. A Bounce Back Loan is included in this.
Government’s 100% guarantee is not concrete
As noted beforehand, the government’s guarantee for 100% of the BBL was seen as a major plus for potential lenders. That meant there was no requirement to provide a personal guarantee before you acquired the loan.
Nonetheless, if you cannot back up the reasoning as to why you got the loan in the first place then you could be held personally liable for it. BBLs are designed to financially improve your business and you should be able to provide evidence as to how they have done that.
On the other hand, if the loan has been used sensibly then the company’s debts will be written off through liquidation.
A director can be made personally liable
A director can be made personally liable if payments are made in terms of preference as opposed to necessity. What this means is that payments were made to certain creditors while others were ignored. Using the loan to pay off certain creditors whilst simultaneously ignoring others.
A director might have also misused the bounce back loan. If the administrator or liquidator comes to analyse the situation, they could make you personally liable for that situation. Essentially, it is important that you are willing to follow the rules of the agreement when it is signed.
If you follow the agreement in good faith and knowledge, you are not likely to be left personally liable for any of the debts that come your way.
Many businesses cannot repay
Over 1.5 million BBLs were given out to businesses in Britain and it is estimated that up to £26 billion will go into default, meaning that this extravagant amount of money will not be repaid.
Basically, this shows that many business owners are in a similar scenario when it comes to repaying their BBLs. In many cases, business owners simply can’t make those repayments and, if you find yourself in this quandary and don’t know what to do, that is where we come in,
Recovery Loan = Bounce Back Loan 2.0…
Well, there are some similarities! Those who
If you want to borrow money under the Recovery Loan Scheme (RLS), you will have to meet some criteria. This could be having:
- A business that has been impacted by coronavirus
- A minimum of 2 years’ trading history
- A business that is trading in the UK
- A loan for business purposes (i.e. working capital or investment, and to support trading in the UK)
- An annual turnover of up to £45 million
You can borrow up to 25% of your annual turnover, just like with the BBLS.
We suggest thinking very hard and talking to our experts before rushing into any more borrowing schemes such as this.
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We are a front-running aid for corporations and people who find themselves in financial hardship. We are also a leading business advice service, providing expert advice and support in personal and corporate insolvency, liquidation, administration, restructuring, and refinancing.
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