There is no denying that the last year has been tough for everyone. Many businesses were hit hard by the pandemic, losing customers, cash flow and some even closing down. The Government was keen to support business owners who had been impacted by the pandemic, so they created a few different schemes to aid in the financial stability of companies across the country. One of the most popular was the bounce back loan scheme, which was available through most major banks, and backed by the Government. Over 1.4 million businesses claimed help through the bounce back loan scheme, with over £45bn borrowed. But now that we are a year on, it’s time for businesses to start paying back their bounce back loans. So today, we wanted to give you a little information about what that looks like, and the options you have.
Delaying your repayments
If your business is still struggling, you might be dreading the idea of paying this loan back right now. The good news is, there are ways you can defer the payments further, giving you more time to get back on your feet and financially stable. According to gov.uk, bounce back loan borrowers can delay their repayments by an extra 6 month minimum (or possibly more depending on the individual bank). This could provide many businesses with the extra breathing room they need to get back on their feet after a difficult 15 months and counting, so we expect this option to be very popular.
Pay as You Grow
If you do not want to just delay your repayments completely, but your cash flow is not quite healthy enough to support larger repayments yet, there is another option. The Treasury’s ‘Pay as you Grow’ repayment scheme allows borrowers to tailor their repayment schedule in a way that suits them. A big part of this is giving the ability to extend the terms of the loan to 6 or even 10 years, which could reduce your monthly repayments by almost half, making them much more affordable as you rebuild your business.
There is a second option under the Pay as You Grow scheme, which involves making interest-only payments for 6 months which you can do up to 3 times throughout the length of the loan, or to pause your repayments for up to 6 months. This is to combat the still unknown landscape of economic recovery from Covid and ensures business owners don’t end up falling into further debt with repayments they can’t afford, especially if there are further lockdowns or restrictions. This option has, in fact, recently been updated by the Chancellor, who says the interest-only payments option will now be available to all businesses from their first repayment, rather than only becoming available after the first 6 payments had been made. This means that businesses can choose to make no payments on their loans until 18 months after they originally took them out, if they wish.
All of these options will be available to any business that took out a bounce back loan, regardless of the bank they took it out through.
Choosing the right option for you
The biggest challenge for many business owners at this stage is deciding what is the most efficient way to pay the loan back. For example, we know of some businesses that took the bounce back loan but didn’t actually end up spending all of it – or any of it in some extraordinary cases. This gave them a nice buffer of cash to work with while times were uncertain, and now it’s just sitting in the bank account. If this is the case, it may be most efficient to simply pay the loan back in one or two chunks, to get the debt off your books, improve your credit and continue building. Or you may want to make the smaller repayments using the money from the loan but leave the bigger pot of money in your business to use for investing in growth. Or if you are one of the many businesses who used the loan to keep their business going, you may want to choose one of the new repayment options to ease your cashflow worries in the immediate future, allowing you to focus on growth.
At Purple Lime, we believe that there is a right option for everyone. But we also understand that it can be difficult to figure out what that is, and what would be the most tax and cashflow efficient method of paying back your loan. We can help by looking over your past accounts, analysing your cashflow, and creating a plan that not only helps you efficiently pay back your loan, but make some strategic decisions to fuel growth in the future. If you would like some help or support in paying off your bounce back loan, we would love to help. Please get in touch to book your free consultation by emailing email@example.com, or calling us on 01249 691360.