COVID borrowing – time to repay and what to do if you can’t

Approximately 1.67 million businesses borrowed £80.43 billion through the Coronavirus Business Interruption Loan Scheme, Bounce Back Loan Scheme, Coronavirus Larger Business Interruption Loan Scheme, and the Future Fund. However, our Shaping your future research has found that 1 in 5 businesses that borrowed money through one of the Government-backed loan schemes have not been able, or do not expect to be able, to repay that money.

Businesses benefited from no capital repayments in the first 12 months with the Government picking up the interest cost on those loans for that period. But now, as businesses begin to repay those loans, it is important that they are fully aware of their options.

Bounce Back Loan Scheme (BBLS)

All accredited BBLS lenders are required to offer the following three ‘Pay As You Grow’ options.

Option one: Repay the loan in line with the original repayment terms and conditions.

Option two: If you are experiencing cashflow challenges but expect to be in a better position to repay in the future, a business can:

• Reduce monthly repayments for six months by paying interest only. This option can be used up to three times during the loan term.
• Take a repayment holiday for six months. This option is only available once during the loan term.

Option 3: A business that would benefit from smaller monthly repayments can seek to extend the loan term from six years to 10 years, which would remain fixed at the original 2.5% fixed interest rate.

The three options can be combined and the ability to repay interest only or take a repayment holiday remains if the loan term is extended.

Coronavirus Business Interruption Loan Scheme (CBILS)

CBILS accredited lenders will also consider an extension of a loan term from six years to 10 years. The decision as to whether the loan term is extended lies with the lender as does the future interest rate payable. It is also possible to request a capital repayment holiday from your lender too.

It is important to remember that any delay in repayment will increase the overall total cost of the loan. Conversely, if a business finds they can repay their BBLS or CBILS early then this will reduce anticipated interest costs and incur no early repayment charges.

All BBLS and CBILS loans below £250k were granted without a personal guarantee, so it’s important to reflect and take advice from a professional before making important decisions regarding your current and future financing.

Recovery Loan Scheme (RLS)

The RLS was extended in the Autumn Budget and will be available until the end of June 2022 for those businesses looking for further government backed finance. Businesses can borrow between £25,001 and £10m for term loans and overdrafts, or between £1,000 and £10m against invoice finance and asset finance for anywhere up to six years. However, from 1^st January 2022 the following changes will come into force:

• The scheme will only be open to small and medium sized businesses.
• The maximum amount of finance available will be £2 million per business.
• The guarantee coverage that the government will provide to lenders will be reduced to 70%.

The RLS is open to any UK business – including those that have borrowed under earlier schemes – that is viable or would have been viable if not for the COVID pandemic, and is not in collective insolvency proceedings. Businesses will need to demonstrate that they have been impacted by the global pandemic to qualify.

Money borrowed can be used for any legitimate business purpose including managing cash flow, investment and supporting growth.

Again, no personal guarantee can be taken below £250k but businesses should note that the 80% government guarantee (70% from 1/1/22) does not mean they escape liability for the loan. If a business defaults and a lender cannot recover the money borrowed, it can then turn to the government which will then refund the lender up to 80% of the loan value.

Businesses should always seek advice when seeking borrowing or raising finance. Our team can help, get in touch for further information.

Download your full copy of our Shaping your future report based on findings from 652 business leaders here.