Applications for Bounce Back Loans (BBLS) closed on March 31st 2021, which means you now cannot apply for, or ‘top up’, your loan – but what do you need to know if you did take one out before this date? How long do you have to repay your Bounce Back Loan? And will you need to pay interest?
What Is A Bounce Back Loan?
The Bounce Back Loan Scheme (BBLS) was created to help small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover during the Coronavirus outbreak.
Earlier this year, it was reported that £45.6bn had been deployed to more than 1.5m SMEs through BBLS. Applications for the scheme originally opened in May 2020, and businesses needed to apply by March 31st 2021 to take part. There was also the option to ‘top up’ this loan for businesses that hadn't already borrowed the maximum amount permitted under the scheme (25% of their total turnover), and this option also ended on March 31st 2021.
As discussed in our previous article about the new Recovery Loan Scheme, Sunak stated: “As the Bounce Back Loans and Business Interruption Loan schemes come to an end, we’re introducing a new Recovery Loans Scheme to take their place.”
It is encouraging to see that the Government is providing continual support for businesses, but it has meant that many questions arose surrounding the existing schemes and what the next steps are for many businesses.
How Does Bounce Back Loan Repayment Work?
In order to provide some answers to important questions and clear up any confusion surrounding the Bounce Back Loan Scheme (BBLS) for those 1.5m SME’s in the UK that took advantage of the scheme, here are some important and easy to digest facts that are worth knowing:
You have a year before you have to begin paying the loan back: no interest will be charged and no repayments will need to be made in the first 12 months.
After 12 months, all banks will charge a fixed 2.5% annual interest, which works out much cheaper than your typical personal loan.
You can repay the loan early without penalty.
The standard repayment period for a Bounce Back Loan is five to six years, but there is also the option to extend your loan period. The Government says this could cut monthly repayments by almost half, but in the long run you will end up paying more than 2.5% interest.
You can take a payment holiday for up to six months: you can request to have the period before you'll need to start paying off your loan extended by another six months. This means it will be 18 months before you start paying it off (interest will still start at 12 months i.e. a year interest-free and the rest at 2.5%).
The loans are unsecured: this sounds bad, but is actually probably for the best. As you do not have to give security (it is the Government that does) it’s more difficult for a credit provider to take your assets, such as your house, if you can't repay.
What If You Can’t Pay Back Your Bounce Back Loan?
According to the National Audit Office, £26bn of the £45bn Bounce Back Loans issued so far will never be paid off. Many financial bodies have also stated that writing off the £45bn issued is likely to be more effective in the long run than chasing debts that will never be repaid.
As aforementioned, because the BBLS is not a secured loan, you will not lose any assets and your credit score shouldn’t be affected. However, this doesn’t mean that banks will not come after you through debt collection agencies. It’s always best to speak to your lender regarding your loan.
In Need Of Business Support?
Ultimately, you should talk to your bank if you are experiencing financial difficulties and they will have standard processes in place to support you. Your lender should also get in touch with you about BBLS repayments three months before they're due to start, which provides an opportunity to discuss your repayment options.
Further, for all updates surrounding business support during the coronavirus outbreak, take a look at the dedicated area on Gov.uk and the measures announced by Rishi Sunak in the 2021 budget measures.
Also check out our CBILS page and recent articles surrounding Covid-19 and Brexit support and insight:
Recovery Loan Scheme Announced to Replace CBILS and Bounce Back Loan Schemes
What Business Support Is Available During Lockdown?
What Does Brexit Mean For Small Businesses?
Whether you are an entrepreneur or have an established SME, there are many reasons why you may need to apply for a number of types of financial support. It’s no secret that the demand for financial support is high, therefore it’s worth knowing that working with cbm to create a strong business plan and financials, will increase your chances of making a successful application, without wasting valuable time and resources within your business.
Get in touch to find out more about how cbm can support your business. To speak with one of our expert consultants please call us on 01604 420 420 or complete the form on the right.