What to do about your Bounce Back Loans (BBLs) – Part 1Posted: May 14, 2021

Bounce Back Loans are becoming a big problem area and we may only be scratching the surface of the impact they may well have on business. Thinking back to when they were first announced, they may not have been the covid response many limited companies wanted, but they did potentially offer a stop-gap solution. Now it is time to pay the piper and after another lockdown and the continued impact of the pandemic, things are not as easy as we all hoped. It is not often that I do a Blog in two parts, but we are hearing more and more people asking what they can do if they cannot pay back their BBL and there is a lot of ground to cover.  It could be that not only did BBLs just kick the financial can down the road, they may also have actually made matters worse. Many business owners are now worried about the impact this will have on them.

This, the first of two blogs, focuses on what you can do now if you are struggling to pay your BBL.

If you took out a bounce-back loan, you have probably already received correspondence from your bank reminding you that the first payment is due soon. Before we talk about what to do though it is worth taking a moment to get some perspective on what we are talking about here. Two numbers sum up the situation and really give a sense of the size of the problem. As of 21 March 2021, according to HM Treasury figures, 1,531,095 BBLs had approved with a total value of £46.53bn. No matter how you look at it, that is a lot of money and clearly, the banks are going to want it back.

When everyone took out the BBLs it seemed a long time until they were going to come due. Now though, after a year of interrupted trade, it is another very unwelcome bill to be paid. Therefore, it seems wise to look at the various options available given that, whilst the lockdown is easing, many businesses may not be back to normal for some time. As result, many businesses may be struggling to make these payments.

Pay as you Grow Options

Let’s take a look at the options that are available under the ‘Pay as you Grow’ scheme. This was announced by the Government in February 2021 and was intended to alleviate the impending pressure of the BBL repayments.

The options are as follows but unfortunately, each has a little warning attached:

·        Extend the length of the loan from 6 to 10 years. This will reduce the monthly repayments but remember you will end up paying more interest overall. Smaller payments but more cost.

·        Make interest-only payments for 6 months. OK, so this is a real reduction in payments, but you are not really reducing the total loan. Use this with caution because you only have the option to use this 3 times during the term of the loan.

·        Pause payments entirely for up to 6 months. This seems a simple solution but there is a danger of simply kicking the can further down the road. If you are not going to be able to pay in 6 months you are simply delaying the inevitable.

To take up one of these options, you will need to contact your bank.

What happens if you do not pay back a BBL?

Despite the unusual circumstances surrounding their creation, BBLs are just the same as any other loan arrangement. It is a debt that will come due. The bank will expect that the loan will be repaid in accordance with the agreement and you will need to pay it.

It is now becoming clear that the Government will expect the lending bank to show that it has pursued the debt. The normal process for this is to pass the debt to its recovery department who will then chase the outstanding loan amount. Whether or not this will include winding up the Company is not yet clear but certainly they are not going to just overlook the repayments or ignore the rumblings from Whitehall.

As I said that the beginning of the article, there is a lot to digest, and this is a developing situation. Sadly, for some businesses, the BBL will be more than a just a problem and they could find themselves unable to pay at all. We will look at what this could mean and what to do about it in the next blog.

Call us for a free 20-minute assessment to discuss your situation if you think you are going to have problems. We are here to help, and we will be keeping an eye on the BBL situation so we can advise you on the best course of action if you are struggling or potentially insolvent.