Numerous businesses were allowed to take out so-called bounce back loans of up to £50,000 when the pandemic struck the UK. The first tranche of these loans was made available in the spring of 2020 to help businesses affected by the various regional and national lockdowns that were imposed at the time to survive. The government-backed scheme meant that credit could be sought without the need to start paying it back for at least twelve months. However, many British firms have found that they have not been able to service the debt they’ve incurred from the bounce back loan scheme as they would have liked.
If your company is struggling to pay off its bounce back loan or if you know that you will never be able to repay it, then what are your available options?
Restructuring Business Debt
According to a leading firm of insolvency practitioners, Salient Insolvency, bounce back loans can be better managed by many firms if they look more closely into their other financial circumstances. By restructuring other debts a firm may have, it may be entirely possible to pay off a bounce back loan under the terms that it was originally taken out under. In other words, if you are able to arrange debt payments with suppliers on more favourable terms, current cash flow problems might no longer affect your company’s ability to pay off its bounce back loan.
According to Camilla Henderson, Co-founder at FastPaydayLoans, “It may also be possible to negotiate an extension to the period of the loan, or a ‘payment holiday’ with your lender. If you are worried about repaying your loan, it is important to speak to your lender as soon as possible. They will be able to advise you on your options and may be able to offer more.”
Accessing the Pay as You Grow Scheme
The government recognised that a twelve-month window for bounce back loans wasn’t going to be enough for all firms, especially smaller ones with limited resources. As such, it introduced a pay as you grow (PAYG) scheme that allowed viable firms to put off paying their loan back for a further six months. In addition, repayments can – under certain circumstances – be extended from the standard six-year term to ten years. This means each payment will necessarily be lower although the same level of debt will still need to be serviced.
If you cannot pay back your bounce back loan and default on it, then the way the government-backed scheme works is that the taxpayer will eventually pick up the bill. Your lender will seek the settlement of all outstanding debts through the government. However, if such a route is taken, then it will necessarily mean your company faces insolvency proceedings and will have to cease trading. Seeking professional assistance under such circumstances is highly advisable.
Time to Pay Arrangements
Finally, it is worth noting that businesses that have debt with HMRC – for unpaid corporation tax, for example – can also seek something of a breathing space so they can focus on making their bounce back loan repayments. Usually, HMRC will grant an additional twelve months to pay off the debt it is owed if a time to pay arrangement is entered into. Obtaining one won’t mean your bounce back loan is repaid but it can often make the difference between saving a viable firm and becoming insolvent.