Paying back your Bounce Back Loan – what you need to know
Many businesses who took a Bounce Back Loan (BBL) in 2020 will soon have to consider the start of the repayments and whether their business has the cash flow to cover the monthly instalments.
As we tentatively move out of lockdown many may naturally still feel nervous about the affordability of these payments or what the future financial performance of their business will look like.
Here is what you need to know about paying back your bounce back loan.
In September 2020 The Chancellor of the Exchequer announced measures that gave businesses options to help ease the burden of these payments. This scheme is known as Pay As You Grow ( PAYG) and offers the ability to:
- request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5% ( Please note that there only 2 options, 6 or 10 years)
- reduce their monthly repayments for six months by paying interest only. This option is available up to three times during the term of their Bounce Back Loan
- take a repayment holiday for up to six months. This option is available once during the term of their Bounce Back Loan
These options can be taken as a combination or individually at any time throughout the term of the loan.
How do I apply for Pay As You Grow?
Lenders will begin contacting businesses about 3 months before the payments are due to start. At this stage businesses will be able to access the scheme on their own lender’s online platform.
Don’t leave it too late to claim to give the lender time to make the arrangements. You should give at least 10 working days before the payment is due.
There is no new entitlement assessment at this stage as each borrower has the right to choose any of these options.
Should I take a Bounce Back Loan payment holiday now?
Whilst these options seem attractive it is important to note that taking any of these options will result in more interest being payable over the term of the loan.
If, after your calculations, you can afford the repayments now, it’s worth considering commencing the payments and keeping the other options for later in the term of the loan as one thing the last 12 months has taught us is that the unexpected can happen!
Unfortunately, we don’t have a crystal ball and it may be reassuring to know that in leaner times of the year or in the event of further unexpected events you can fall back on these measures.
Will making a Pay As You Grow application affect my credit rating?
These applications will not adversely affect credit ratings as such, but businesses need to consider that it may affect the overall creditworthiness of the business until the debt is repaid. This will be particularly relevant should the business need to apply for further funding during the term of the loan.
However, if there are arrears on the loan at any time, normal recovery procedures by the lender will apply and credit ratings will then be affected. So, it’s important to make the right choices over affordability in advance of problems occurring.
Can I pay back my Bounce Back Loan early?
If you want to start paying back your bounce back loan early, the simple answer is, yes, you can repay the loan at any time including before the loan repayments start or if the loan term is extended.
What do I do if I received the Bounce Back Loan in error?
If you made a mistake on the application ( e.g. on levels of income or the business was insolvent at the time of application) and you received the loan in error, and now cannot pay it back in full, you should contact the lender immediately to discuss repayment options
It is worth remembering that the BBL was made available for the betterment of the business and misuse of the funds could be questioned
Whilst there is no personal guarantee on these loans, a fraudulent application could place you and your assets at risk
If you need help in planning your cash flow or any other advice please get in contact.