Bounce back loans provided a lifeline to many businesses who were unable to operate as normal during the pandemic, but companies are now having to factor in monthly repayments of these loans even though trade may not have returned to pre-pandemic levels, meaning their cash flow is still cause for concern.
The first option to consider is the Pay As You Grow scheme. This enables businesses who have started repaying their bounce back loans to:
- request an extension of their loan term from six to ten years at the same fixed interest rate of 2.5% (reducing monthly repayments by almost half)
- reduce their monthly repayments for six months to paying interest only – this option is available up to three times during the term of the loan
- take a repayment holiday for up to six months – this option is available once during the term of the loan.
You can use these options individually or you can combine them. Using any of the Pay As You Grow options will increase the overall cost of your loan so this should only be used if you really need to free up the cash flow for trading.
Most banks will allow you to view and select your Pay As You Grow options by logging into your online banking.
If it looks like the company might struggle to meet future bounce back loan repayments, even after taking advantage of the Pay As You Grow scheme, there are strategies that could strengthen its cash flow for instance, if you owe money to HMRC, consider freeing up cash to make the loan repayments by entering into a time to pay arrangement with it, which can spread HMRC’s repayments over twelve months
If you’ve tried the above options and still can’t meet the repayments, consider speaking with an insolvency practitioner. As well as a low interest rate of 2.5%, the government provided 100% security on the bounce back loans which meant that directors didn’t have to give personal guarantees. Although this may not mean much while the loan is being repaid as planned, if the company finds itself in financial difficulties and subsequently enters an insolvent liquidation process, the responsibility for repaying the bounce back loan will fall to the government rather than the company directors.
If the company can’t afford to repay the bounce back loan , the directors will only be held personally responsible for repaying the money if it can be proven that they have misused the bounce back loan funds. As long as the money was spent in a way directly related to the business and its operations, it is unlikely you will be accused of misusing the funds. However, if the money was used to fund personal purchases, company directors could be personally liable for the outstanding amount if the business is not in a position to keep up with the agreed monthly repayments.