Due to the ongoing Covid-19 pandemic, the UK Government created the Bounce back Loan Scheme (BBLS) to support businesses struggling through the lack of economic activity. The scheme was effectively a Government-backed loan organised and managed through UK banks.
The aim of this article is to help businesses who have taken out BBL loans and now face the prospect of starting repayments.
How will my BBL lender make contact for repayments?
Those who took a BBL in the spring of 2020 are being contacted by their lenders to remind them that payments will start becoming due. Lenders are sending these letters in a standard format to borrowers, starting three months before repayments are due to commence.
They will also provide them with information on their Pay As You Grow (PAYG) options. These are:
- Extend the length of the loan from six years to ten years.
- Make interest only payments for six months, with the option to use this up to three times throughout the loan.
- Take a six month repayment holiday. This option is available once during the term of the loan.
Borrowers will be able to use these options either individually or in combination with each other. They also have the option to fully repay their loan early and will face no early repayment charges for doing so.
My Business will struggle to repay my BBL – What do I need to consider ?
If you will struggle to meet your BBL scheduled repayments in full from the first month, you should consider carefully which of the options (or combination of options) set out in your lender’s letter is best for you. Lenders will be available to help or provide further explanations for example on the total costs involved – but it will be your decision.
To determine if your business will struggle to repay, the lender is likely to enquire if you would like to make use of any of the PAYG options. However before you make that decision you are likely to be asked if the following statements apply: –
1. My business has formally ceased trading; or
2. Having considered fully the PAYG options and (my directors’ duties and) my business’ financial position, I have concluded that I am/my business is in financial difficulty and I would like to discuss with you my circumstances.
Borrowers which answer yes to the first point should hold a specific conversation with the lender on their circumstances. If the lender can verify that the business has permanently ceased trading, rather than simply having paused trading for a time, it is likely that they will move the loan into their recoveries process.
Borrowers who answer yes to the second point should move into a conversation with the lender on their circumstances, to understand which of the PAYG options may assist their financial position.
How can I reduce interest costs on your BBLS loan?
It sees rather obvious but if you can afford to stick to the repayment schedule rather than making interest-only payments, extending the loan or taking a payment holiday, you will pay less interest over the life of the loan. Its also worth noting that if you repay the loan early, you can do so without penalty, which will also reduce interest costs.
Things to Consider:
I have other borrowings as well as my BBLS loan, which should I pay?
You need to consider which debt your business should prioritise. Remember the interest rate on your BBLS loan is set at 2.5%, and the BBLS lenders cannot make recoveries by repossessing your home or other personal assets. If repaying your BBLS debt would cause significant difficulties, you should raise that with your lender.
Its also worth pointing out that in the budget on 3 March 2021, the Chancellor announced a new Recovery loan scheme that will provide Government support for further lending to business. The new scheme will provide a Government guarantee for 80% of this lending, in order to give confidence to lenders, and will be open from 6 April to 31 December 2021. Minimum loan size requirements and terms will vary depending on the purpose of the loan.
If I can afford some repayment of my BBLS debt, but cannot yet meet the full level of repayments due, what should I do?
Your lender’s letters to you will set out the different PAYG options available, and these will include information (either illustrative examples or specific to you) on what they mean for the overall level of interest you will pay and the timing of payments. You will probably want to balance the overall cost over the life of the loan, against the need to make payments as they fall due over coming years.
You may wish to take into account that:
- Taking interest or capital payment holidays, without extending the term of the loan, will increase the amount of your monthly repayments afterwards.
- Extension of the loan will reduce your monthly payments because you are paying back the capital amount over a longer period; but the fact you are paying for longer will increase the overall cost of the loan. You should be confident that your business will stay trading for long enough to pay off the loan.
- You will want to be confident that as your business recovers and its revenues grow, you will be able to afford the revised payments as they become due, along with other expenses. Cashflow forecasts for your business may be a helpful tool to support your thinking.
Contact us for help
We at Lucas Ross – Business Rescue, Recovery & Insolvency can provide advice on business restructuring and insolvency, should you need to discuss these options with your lender. Contact us at help@lucasross.co.uk – We offer free, no obligation conversations and are willing to explore all options with you to help you survive or consolidate your debt position.
