What are the options for paying back a Bounce Back Loan?
In a recent article, we looked at what the penalties could be to businesses and for directors if a Covid Loan (Bounce Back Loan, BBL; Coronavirus Business Interruption Loan Scheme, CBILS; Coronavirus Large Business Interruption Loan Scheme, CLBILS; Recovery Loan Scheme, RLS) has been taken out fraudulently or used incorrectly. We also looked at how Insolvency Practitioners could help businesses struggling to pay such loans back, perhaps as part of wider financial difficulties, through creditor negotiations, refinancing or a Company Voluntary Arrangement.
In this article, we are grateful to Jo Wilmott, a commercial lending specialist from The Minster Partnership in Wimborne Dorset, who reports back on a conversation she recently had with a representative of the British Business Bank (‘BBB’ – who oversee the range of Covid Loans), regarding the options businesses have for repaying their BBLS and/or CBILS loans in light of the recent financial difficulties businesses are experiencing with inflation and supply chain problems.
Elaine Wilkins, from Antony Batty and Co’s Bournemouth office, commented:
“We are seeing increasing numbers of businesses struggling to make their BBL repayments, so this advice from Jo is timely and very useful. As always, the sooner advice is taken the better the likely outcome.”
Options for paying back your BBLS loan
As Jo says:
“Several of our clients have concerns about making their BBL payments right now and are looking for reassurance and guidance. The person from the British Business Bank I spoke to advised that the Lenders have been given specific guidelines in relation to assistance that must be provided to customers that have Bounce Back Loans. As ever, the sooner assistance is sought, the better.”
The guidelines are:
1. Any Bounce Back Loan borrower with concerns regarding repaying the loan should contact their Lender to discuss the various options available.
2. Your Lender will be able to advise you on your options in the light of any other borrowing you may have with them.
3. Your Lender will explain to you about the various Pay as You Grow (PAYG) options. These options were announced by the Chancellor in September 2020, and are designed to enable businesses to:
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- request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
- 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.
Businesses that have taken out a Bounce Back Loan can use Pay as You Grow (PAYG) to help manage their cashflow to have a better chance of getting back to growth. The above options can be used individually or in combination with each other.
The BBB does point out that: “Borrowers should be aware that they will pay more interest overall if they use one or more of these options, and that the length of the loan will increase in line with any repayment holidays taken.”
What is the situation with CBILS?
The situation is different with CBILS, as Jo points out:
“However, in relation to clients that took CBILS, because these applications went through an underwriting process performed by the Lender, they become subject to the Lender’s standard forbearance policies and the below is the general sort of position most Lenders are taking.
What happens if I cannot make the payment on my existing CBILS loan after the first 12 months?
If you are concerned that you cannot meet the repayments on your CBILS loan after 12 months, then either:
- Call your Relationship Manager, or
- Check the website for the Lender providing the CBIL for contact details as there may be a specific Coronavirus Support team.
They will assess your situation and discuss your options.
Am I able to extend my term to 10 years for my existing CBIL?
A term extension beyond 6 years, up to a maximum of 10 years for existing CBILS facilities may be possible if your loan is within the Lender’s usual forbearance policies. To apply for this, please either call your Bank Relationship Manager or check their website for guidance and support available.
(The above is as detailed by the Lending Standards Board. The Lending Standards Board is a primary self-regulatory body for the banking and lending industry. Lenders should be able to show the Board that they are supporting business customers in financial difficulty and be able to demonstrate that a sympathetic and positive approach has been applied when considering a customer’s financial situation.)
Further research by Jo suggests that:
“…if a customer wanted to discuss financial assistance if they could not meet CBILS repayments, it is likely they will be moved to a specialist team where the managers have more time to help the customer and work with different credit guidelines which give a bit more flexibility.“
In other words, for CBILS there are no specific options through any specific Pay as You Grow Scheme as there are with BBLs.
Although seeking help and extending the loan may help the business by easing cashflow, business owners should be aware that, especially in relation to CBILS, if forbearance measures are provided this may later limit the ability for the business to borrow further funds from the Lender on standard lending terms. The Lender may consider the need for the business to have special terms as a sign of financial distress.
How can Insolvency Practitioners Help?
Given the very severe difficulties that many businesses are now facing due to inflationary pressure and declining economic activity, a concerning situation can very quickly become very worrying. If PAYG options are not enough, then swift action is needed, as Covid Loans still need to be repaid.
There are several ways of turning around a business in financial distress, and avoiding liquidation, including creditor negotiations, refinancing, or a complete restructure using a Company Voluntary Arrangement, for example. Here are some testimonials for CVAs we have supervised.
In our experience, if you are worried about your business’s finances, the sooner you seek professional help, the better. Early intervention is vital to survival, especially right now. The consequences of not acting could rapidly lead to formal insolvency and liquidation.
Contact our Insolvency Practitioners for help and advice
If you have concerns regarding any of these issues, please contact our expert team of Insolvency Practitioners and administrators on the numbers below and we can arrange a free consultation without obligation.