If you are experiencing difficulties keeping up with your monthly repayments of your Bounce Back Loan, you may be considering extending your loan to make the repayments more manageable over a long-term period.
Whilst you cannot change the interest rates on your loan, there are ways you can reduce the costs of your monthly repayments and increase the length of your loan.
How long can you pay a Bounce Back Loan over?
When you first sign the agreement of your Bounce Back Loan (BBL), you will have likely signed to repay it over a fixed six year period.
During this time, you will have had the initial first 12 months as a repayment holiday in which the Government paid for you. You will have only started to repay after these 12 months had finished.
What happens if I can’t pay my Bounce Back Loan?
If you cannot repay your BBL, whether the company is liquidated or otherwise, you will not be held personally liable for the repayments.
One of the main benefits of a BBL was that the government provided the banks with 100% security for the money that they lent. This means that if your company cannot repay the money owed, the bank will turn to the government for repayment rather than company directors themselves.
However, there are two scenarios in which an issue of personal liability may arise:
- When the funds are not used to benefit the company
There are very few rules which dictate how a BBL can be used, however, there are some issues related to directors taking advantage of the scheme by using the funds to buy personal assets.
If the company enters a state of Administration or Liquidation, an insolvency practitioner must be appointed. A part of their role is to investigate the reasons behind the company’s insolvency. If they find that the loan has not been used to benefit the company, as an act known as misfeasance, the company directors will be held personally liable.
- When you pay certain creditors above others
Under the terms of a BBL, the funds can be used to refinance existing company debts. However, if repayments are made to certain creditors before others, as a company director, you risk making preferential payments which could lead to you being held personally liable.
For example, if you decide to pay back a loan which is connected to a party of the member, such as a friend, while other unsecured creditors such as HMRC go unpaid, you will be making a preferential payment.
If insolvency practitioners find that the BBL was used to pay back certain creditors but not others, directors could be held personally liable for the value of the repayments.
If you’re having issues with repaying your BBL, or you fear financial difficulties may arise in the upcoming months, it is vital that you seek expert assistance at the earliest point possible.
Read our guide on what to do if you can’t pay your Bounce Back Loan off for more advice in this area.
Can I extend the repayment of a Bounce Back Loan?
Yes, you can extend your BBL under a new initiative called the Pay As You Grow (PAYG) Scheme.
This scheme was introduced following fears that many companies would not be able to keep up with the repayments of their BBLs over a six year period.
What does extending a Bounce Back Loan mean?
Extending your BBL means you will pay off the balance over 10 years, rather than the 6 years you originally agreed to. This will almost half your monthly repayments, which could free up vital cash flow whilst your company finds its feet.
Increasing the repayment length of your BBL does mean that the amount of interest you pay will be increased too. While the fixed rate of 2.5% will stay the same, you will be paying it for an additional four years. This will cost you more than sticking to the initial six year agreement.
Bounce Back Loan repayment options
As we’ve mentioned, the PAYG scheme was introduced to help businesses who are struggling with their loan repayments.
There are three main ways of reducing the monthly repayments if they are becoming a financial burden. If you cannot afford to repay your BBL, here’s how the PAYG scheme could help you:
- The opportunity to delay repayments for six months: This is on top of the 12 month repayment holiday which you will have been given when you took out the BBL. You do not need to have made any repayments towards your BBL to qualify for this.
1. You can lengthen the repayment term from six to ten years: By doing this, you will be able to halve your monthly repayments which could make a huge difference to your cash flow. Read our guide to help you decide if you should Repay a Bounce Back Loan over 6 Years or 10 Years.
2. You can request to make interest-only payments for six months: This will reduce your monthly repayments for these months and ensure you are not paying any additional interest as you would if you took a repayment holiday. You can choose this option three times during the length of the loan.
Have the Bounce Back Loan repayment terms changed?
As of April 2021, the official Gov.uk press release on BBLs stated the three new options mentioned above.
It’s worth noting, BBLs already came with a 12 month period of no repayments and no interest, so this can now be extended to 18 months in total by delaying the repayments by six months.
You should speak to your lender if you are interested in any of the new options. These changes can make a real difference to small businesses who have taken out the loan.
What happens if I extend my Bounce Back Loan?
If you choose to extend your BBL, you will be repaying the loan over 10 years rather than the initial agreement of 6 years.
This can alleviate some of the financial strain that your business may be facing, as your monthly repayments will be almost halved. This can allow you to distribute these funds to other areas of the business which need it the most.
Is it a good idea to get an extension on Bounce Back Loan repayments?
For some businesses, extending their BBL repayments is a great way to keep up with their repayment obligations. As BBLs were introduced with a 2.5% interest rate, extending the loan term is a cost effective way of freeing up cash flows rather than taking out an alternative form of funding.
However, for others, getting an extension may not be enough to balance their finances. If you are concerned that your company may not be able to repay its loan or any other form of borrowing, it is imperative that you seek expert help and advice.
How to extend your Bounce Back Loan
If you wish to extend your BBL, you should speak to your lender who will be able to talk you through the options available to you.
Thanks to the PAYG scheme, you can extend your loan to 10 years or alternatively, delay your repayments or make interest-only payments for 6 months.
If you are unsure which option is the best choice for you, or you fear that none of the options will be effective in helping you repay the loan, you should seek expert advice.
At The Insolvency Experts, we pride ourselves on providing the best services possible to help you and your business. If you fear you are unable to repay your loan, contact us today.
We will take the time to assess your individual situation and provide the best solutions possible to your unique circumstances.
Can my business still apply for a Bounce Back Loan?
No, you cannot apply for a BBL. Unfortunately the BBL scheme closed to new applicants in March 2021.
If you are struggling with finances within your business, get in touch for support from our expert team.