Your options if you’re struggling to repay a bounce back loan
Are you struggling to keep up with your bounce back loan repayments? Don’t worry – you’re not alone.
The bounce back loan scheme (BBLS) was quickly conceived and rolled out in 2020 to help small and medium sized businesses weather the pandemic and immediate closures to comply with government ordered lockdown measures.
Eligible businesses were able to access funds from £2,000 up to 25% of their annual turnover up to a maximum of £50,000.
The process was overseen by the British Business Bank although the loans were provided through various approved banks and accredited lenders.
In order to get as many outlets lending as possible, the decision was made by the government to underwrite 100% of the value of the loans so if they were unpaid then the bank would be able to reclaim the amount – after making reasonable attempts to recoup the same.
This decision was made to speed up the loan process meaning banks and other lenders could suspend their usual approval scrutiny and safeguards and forgo the need for personal guarantees from directors which would usually be required for loans of this amount.
The loans would be interest free for 12 months then capped at 2.5% per annum afterwards for the remainder of the repayment period. Loans were expected to be repaid over a period of either six or ten years with repayments beginning 12 months after the loan was taken out.
There was also the facility to top up the borrowing amount if the initial borrowing was not over £50,000.
According to the National Audit Office (NAO) a total of £46.5 billion was paid out through 1,531,095 loans. The majority (58%) were for the maximum amount of £50,000 while the average total borrowed was £30,000.
What happened?
As we now know, the economy didn’t just dip for a couple of months before everything broadly went back to normal.
We saw a once-in-a-century series of lockdowns and permanent changes in customer behaviour which means that thousands of businesses still haven’t recovered to 2020 levels of economic activity.
Three years later, for many directors, the bounce back loan scheme has gone from being an essential lifeline into an anchor dragging their business down.
The monthly repayments are becoming more onerous as turnover drops and profits become losses and to add insult to injury, the NAO reports that just over 10% of the amount lent (£4.9 billion) has probably been lost to fraud and another £12.1 billion would be unlikely to be recovered.
Why has repaying bounce back loans become so hard?
There are several factors impeding businesses from making their monthly repayments of which any or all could affect any company. These include:-
- Rising energy bills
- Supply chain weakness or collapse
- Falling customer spending
- Reduced business confidence
- Historically high inflation levels
- Rising interest rates to counter them
- Weak economic growth and performance
Many directors will be wondering what, if anything they can do in these circumstances. The good news is that there are options available to them.
What options can directors look at?
Despite previous reassurances, the worsening economic conditions facing the country means that HMRC and lenders are becoming increasingly more aggressive in their attempts to recoup as much bounce back loan arrears as possible.
They will use threats of winding up petitions and compulsory liquidation to intimidate directors into making repayments even if they might not be able to afford to and to the detriment of the day to day running of their business.
There are other options available to them however.
Administration or a Creditors Voluntary Arrangement (CVA) could provide some protection and relief as they both halt legal proceedings against a business when they are entered into but both options will only help a business if they could be a viable proposition in the future.
The most effective and permanent solution to solving a bounce back loan repayment problem, or other unsecured debt, if the company is not viable moving forward, is by closing the company using a Creditors Voluntary Liquidation (CVL).
How does a CVL work?
A Creditors Voluntary Liquidation is the most frequent kind of corporate insolvency with 18,827 cases in 2022 – which formed 85% of all company insolvency cases last year.
You can find out more about how a CVL works and how long the process takes here but when they are completed successfully, all unsecured debts – including bounce back loans – are written off for good.
Without debts to hold them back, directors are then free to pursue their next professional venture – with no further obligations outstanding.
Having difficulties meeting bounce back loan payments or any regular bills could be a sign that the business is in financial trouble.
A director will understand this and probably know before it reaches this stage but they might not know what options are available to them to either help rescue or restructure the business or go in a different direction and look to close it before they launch their next venture.
The best thing for any business owner or director unsure of their next move is to get in touch with us.
Once better acquainted with these issues then one of our team of expert advisors will be able to more accurately outline what the realistic choices are and what they will need to do to make progress.
For a lot of processes, the first step can be quite difficult but this one is easy – just get in touch to arrange a meeting and a convenient time and date and that’s it!