We’re coming up to almost a year (how on earth has that happened?!) from when Bounce Back Loans were announced by Rishi Sunak and gave a lifeline to many businesses. Which means that the 12 month repayment holiday will soon be ending for many of us.
Time to repay
If you haven’t needed to dip into your loan – you can repay it all before the repayment holiday ends, there will be no early repayment charges and you’ll have no interest to pay at all – whoop whoop!
Or if you used some of your loan (or would like to keep some as a buffer) you can make a one off repayment of the amount unused, as well as additional payments on a regular basis, which will also help save you money on your interest payments.
And of course you can pay the repayments as originally agreed over the remaining 5 years of the loan term.
What if you can’t pay as planned?
Many of you will have used the loan to pay the bills over the last 12 months, cover the additional overheads to allow you to re-open, cover wages and so on. And quite rightly many people are dreading the thought of making the repayments – especially those that are only just re-opening and haven’t had a chance to get back on their feet yet.
But please don’t panic, just because the repayment holiday is ending that doesn’t mean the help is too. Good old Rishi came through for business owners and announced Pay as you Grow, which gives you more time and flexibility to pay back your loan.
Using these options won’t affect your credit score, though it may influence how borrowers assess your creditworthiness in the future, and your loan may cost you more overall.
So what are the options?
If you expect to be in a better position to repay in the future:
- You could reduce your monthly repayments for six months by paying interest only. When you choose this option you can keep your original loan term or extend your loan term by six months (as long as you haven’t already opted for the 10 year term, in which case your loan term will remain at 10 years). Your interest costs will increase as a larger amount of your loan is outstanding for longer. By choosing to extend your loan term, your interest costs will increase further as you are repaying your loan over a longer period. This option is available up to three times during your Bounce Back Loan.
- You could take a payment holiday for six months. You’ll make no capital repayments or interest payments during this time. When you choose this option you can keep your original loan term or extend your loan term by six months (as long as you haven’t already opted for the 10 year term, in which case your loan term will remain at 10 years). Your interest costs will increase as a larger amount of your loan is outstanding for longer. By choosing to extend your loan term, your interest costs will increase further as you are repaying your loan over a longer period. This option is available once during the term of your Bounce Back Loan.
Or if you’re only able to repay a smaller amount:
3. You could request an extension of your loan term from six years to 10 years at the same interest rate of 2.5%. If you’re considering this option, you should think carefully about your ability to repay over a longer time frame taking into account things such as if you intend to cease trading or retire within the revised term of your Bounce Back Loan.
You can use the extension (3) in addition to 1 & 2. Both options 1 and 2 will be available throughout the course of your loan term.
(Source: Starling Bank)
What is the best option for me? What should I do?
Cash flow forecasts are key here – model out each of the scenarios and see what works best for your own specific circumstances. Your accountant can help with this, we personally use Float to model out scenarios and see how your bank balance is affected by different scenarios.
Who else can help?
Your bank will be getting in touch with you shortly (if they haven’t already done so) to advise of your options. Speak to them to find out exactly what each option means for you – what the numbers would actually look like.
You can also contact the following organisations for free advice:
- Business Debtline (visit https://www.businessdebtline.org or phone 0800 197 6026)
- The Money Advice Service (visit https://www.moneyadviceservice.org.uk or phone 0800 138 7777)
- Citizens Advice (visit https://www.citizensadvice.org.uk or phone 0800 144 8848 (England) or 0800 702 2020 (Wales))