In early 2020, the government established three business loan schemes in response to the COVID-19 pandemic.
These were the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Larger Business Interruption Loan Scheme (CLBIS), and the Bounce Back Loan Scheme (BBLS).
By the 31st of May 2021, the three schemes had disbursed over £79 billion through loans and similar facilities, with the BBLS accounting for over 93% of loans and 60% of the funds distributed.
All three schemes closed at the end of March 2021, and were replaced by the Recovery Loan Scheme in April 2021.
The schemes have helped many UK businesses survive – but many face an uncertain future, with the Office for Budget Responsibility suggesting that up to 40% of BBLS borrowers may default, which could lead to total losses of up to £33.7 billion.
So, what exactly does happen if you can’t pay your Bounce Back Loan?
If you’re struggling to make repayments, read on to find out what to do next…
Bounce Back Loans: the numbers
- Bounce Back Loans allowed lenders to provide a six-year term loan from £2,000 up to 25% of a business’ turnover.
- The maximum loan amount was £50,000.
- Bounce Back Loans were 100% backed by the government.
- Around a quarter of all UK businesses applied to the scheme.
- 1.5 million loans worth £47 billion were made, with 90% of these going to micro-businesses with a turnover below £632,000.
- When the scheme launched, it expected to pay between £18 billion to £26 billion of loans.
- As of the 30th of September 2021, £2 billion worth of loans had been repaid and £1.3 billion had been defaulted on.
- Around 100,000 loans are currently at least one month in arrears.
What happens if you don’t pay your loan
It’s clear to see from the numbers above that if you’re struggling to pay your loan, you’re not alone.
Many businesses are still in the early stages of recovery, and with additional factors such as the end of the furlough scheme, the rise in wages, national insurance, and the upcoming increase in VAT rates for hospitality and tourism sectors, it’s no wonder people are starting to feel the pressure.
So, if you are struggling and can’t pay your Bounce Back Loan, here’s what to do:
1. Use the Pay As You Grow scheme
The Pay As You Grow (PAYG) scheme was introduced by the government in 2020 to help business struggling to pay back their Bounce Back Loans.
Under the scheme, business have the ability to defer repayments for a further six months in addition to the 12 months already given from their first repayment.
So essentially, you can opt to pay nothing for 18 months – however, remember interest will continue to accrue. You can also choose to extend the length of the loan from six years to 10 years, reducing monthly repayments by almost half.
And finally, if you are struggling to make repayments you can also make interest-only repayments for six months which can temporarily reduce your monthly payments whilst ensuring no additional interest is added.
2. Time to Pay Arrangement
If you have other credit agreements in place as well as your Bounce Back Loan, you could also enter into negotiations with your other creditors to see if they can offer you any flexibility when it comes to your monthly repayments.
For example, if you owe money to HMRC, you could try and set up a Time to Pay arrangement (TTP), which enables you to repay any tax you owe over a period of up to 12 months.
Discover how to apply for a TTP here
3. Company Voluntary Arrangement
Alternatively, you could also consider entering a formal agreement with your creditors such as a company voluntary arrangement (CVA).
A CVA is a payment plan which enables you to pay back your debts to your creditors in an affordable way over a set period of time, giving you some much-needed breathing space.
Not sure if a CVA is for you? We explain the positives and negatives of a company voluntary arrangement in this blog. And if you want to find out more about how the process works, we explain it all here.
4. Close your business down
If your business is struggling with repayments so much it has gone beyond the point of return and you really can’t pay your Bounce Back Loan off, you might be left with no option but to close things down and walk away.
And if you owe money to the government in the form of a Bounce Back Loan, your company will be deemed insolvent – which means the best way to close things down legally and properly is with a creditors’ voluntary liquidation (CVL).
Find out more about how to close your business if you have a Bounce Back Loan here.
Will I be personally liable?
Because Bounce Back Loans are fully backed by the government, no personal guarantee had to be given – which means if you go into liquidation whilst having an outstanding Bounce Back Loan, you will not be responsible for paying the money. Instead, the outstanding balance will be covered by the government.
However, it’s not as simple as just not paying your loan back, and you cannot just state that you can’t pay your Bounce Back Loan and expect the government to cover your costs; rather, the appointed liquidator will need to assess how the loan was spent to ensure the funds weren’t misused.
If misuse of the loan is suspected – for example, if it was used for personal use – you could be held personally liable for the loan.
To conclude...
Just because your company is currently struggling to repay its Bounce Back Loan, it doesn’t mean that all is lost. There are a number of different options available that could enable you to turn things around and rescue your business.
So, if you want to explore business rescue and recovery solutions, contact our expert team today!
