Understanding Bounce Back Loans | The Definitive Guide (2023)

What is a Bounce back loan?

In response to the Covid-19 outbreak and the subsequent lock-downs of social and business activities , the government put in place a number of covid financial assistance schemes to help individuals and companies survive the disruption.

Bounce Back Loans was one of these schemes. Launched in Spring  2020, the programme provided small and medium-sized firms with loans of up to £50,000, which had a number of appealing features.

The government covered all interest and fees for the first year, there were no repayment requirements for the first 12 months, and, perhaps most importantly, the government offered the banks 100% security in the event of non-repayment. The loans were offered with a low interest rate that was fixed at just 2.5% for the entire 6-year term. The directors were not required to furnish a personal guarantee.

Unfortunately, no one at that early stage of the pandemic could have predicted how long and how deep the associated restrictions on business and trading operations would be, despite the fact that the vast majority of companies took out these loans in good faith with the full intention to repay as promised.

Many people will have taken out a Bounce Back Loan in the spring of 2020, fully anticipating that things would  be “back to normal” by the time the loan’s first payment came due. Unfortunately, more than a year of reduced economic activity because of constantly shifting local and national regulations left many enterprises unable to make the required monthly repayments.

You are not alone if you are having trouble paying back your bounce-back loan. Around two million firms borrowed £47.36 billion in Bounce Back Loans, and many are having problems repaying their loans.

It is important that you get professional assistance and guidance as soon as you become aware of any issues you may have paying back the money borrowed under your bounce back loan. We can review your position and set out the options you have.

What is the Pay As You Grow (PAYG) scheme?

The Pay As You Grow scheme was introduced in response to worries that many businesses could run into difficulties when it came time to begin repaying their Bounce Back Loans.

The PAYG programme offers three ways to lessen the immediate financial load on businesses across the nation:

1. The first 12-month payment holiday may be extended for an additional 6 months. This can be done either right away after the first one-year payment holiday or at any other point over the loan’s term. You should be aware that interest will continue to be charged during this period.
2. The bounce back loan’s length can be extended from six to 10 years. Although the monthly cost would be virtually half if the payments are spread out over a longer period of time, you will end up paying more in interest throughout the course of the loan. Six months of interest-only payments are allowed.
3. Six months of interest-only payments are allowed. This will prevent any further interest from being imposed while saving businesses money on repayments for these months.

Can I negotiate a Bounce Back Loan on repayment terms?

You can speak with your bank on how one or even all of these choices can help with the repayment of your Bounce Back Loan in accordance with the PAYG programme. 

The bank will allow you to use the PAYG scheme’s available repayment choices, but you shouldn’t anticipate any additional leniency from them. It is doubtful that your bank will negotiate with you further about paying back your bounce back loan.

What happens if I can’t repay my Bounce Back Loan?

If you still believe you are in a position where you are unable to repay your Bounce Back Loan after looking into your choices, including the PAYG plan, you must seek expert support and guidance right away. More choices will be available to you and your firm will have a better chance of being saved the earlier expert assistance is sought.

When you default on your Bounce Back Loan, the bank will usually quickly follow up. Usually, this will come in the form of a letter or phone call requesting you to regularise your account. In the event that you don’t do this and your arrears increase, recovery action will commence. Ultimately, your company might be put into liquidation by court order.

Seeking professional insolvency guidance will help you understand your choices if you have already missed payments on your Bounce Back Loan or suspect that you may do so soon. If you contact us you will receive advice directly from a qualified insolvency practitioner.

Can a Bounce Back Loan be written off?

The fact that directors were exempt from having to give a personal guarantee to secure the borrowing was one of the main advantages of a bounce back loan. Instead, the government gave lending institutions security for all of the debt incurred under the Bounce Back Loan programme.

In plain English, this indicates that in the case that the business is unable to repay its Bounce Back Loan, the government will step in and make up the difference so that the lending bank won’t have to take a loss. The Bounce Back Loan will essentially be wiped off in certain situations.

Although the government’s assurance offers important protection in the case of major financial difficulties, the company is still ultimately responsible for repaying the loan.

Are Bounce Back Loans personally guaranteed?

No, for every Bounce Back Loan made under the programme, the government provided banks with 100% security. As a result, business directors were not needed to give a personal guarantee, and as long as the money has been utilised appropriately, directors won’t be held personally liable if their company is unable to pay back the money it borrowed.

Can Bounce Back Loans be used to pay wages, buy company property, or pay company taxes?

Simply said, absolutely. Any use of a bounce back loan that benefits the business directly is permitted. Some businesses will use this to pay overhead costs or unpaid debts, while others may decide to use the loan to invest in real estate or other firm assets. 

The sole prerequisite is that the loan be used for company purposes only, not for personal ones. If the Bounce Back Loan funds were used for personal expenses, you can be held personally liable if your business is unable to repay the loan in full.

When will I have to repay my Bounce Back Loan?

After taking up the Bounce Back Loan, there are no monthly payments required for the first 12 months, and the government will pay all interest and fees during this period. 

The first of your monthly payments will start in month 13 and continue every month for the next six years of the loan’s term. But, the PAYG plan gives you the option to postpone these monthly payments for an extra 6 months and make the loan’s total duration 10 years long.

What happens if I cannot repay my Bounce Back Loan?

If you are unable to repay your bounce-back loan, you must seek prompt expert advice. Your bank will be able to assist you in taking advantage of the PAYG programme, which might offer some temporary respite until the financial situation of your business improves. 

But, if you believe your issues are more pervasive, you could need to see a qualified insolvency practitioner. They can walk you through your alternatives and assist you understand the predicament that your business is in.

Can a Bounce Back Loan be paid over 10 years?

The Pay As You Grow (PAYG) programme enables Bounce Back Loans to be repaid over a ten-year period. The PAYG amendment permitted businesses to extend the 6-year payback terms that were originally granted for bounce back loans. 

Although you would pay back significantly more over the course of the loan if you spread out your Bounce Back Loan repayment over ten years, your monthly payments will almost be cut in half.

For further information and impartial advice, feel free to give us a call on 0113 242 0808 or e-mail advice@chamberlain-co.co.uk