If you are a Director of an insolvent company, Oliver Elliot can help you address your concerns arising from a Bounce Back Loan and how to repay it on Pay As You Grow.
Bounce Back Loan Support
Pay As You Grow is the government’s restructuring of the repayment plans for businesses who have taken out Bounce Back Loans.
In response to the virtual shutdown of certain sectors of the UK economy by the government in March 2020, shortly thereafter the government offered support to businesses. One of those support schemes was the Bounce Back Loan.
What Is A Bounce Back Loan?
A Bounce Back Loan is a loan provided to UK companies in need of economic support and assistance that were not already in financial difficulty in December 2019. In other words, the intention was to support businesses that were viable were it not for the impact of the Coronavirus on the UK economy.
How To Qualify For A Bounce Back Loan
In order to qualify for a Bounce Back Loan you needed to have a business of which more than 50% of its activities and income arose from trading.
Initial Repayment Plan
The initial repayment plan was arguably optimistic, with an aspiration that businesses would start repaying the loans which were for a period of 6 years; after 12 months. The impact of Covid-19 has extended wider than initially perhaps thought and with a second national lockdown the government appears to have recognised that repayments of Bounce Back Loans may have to stretch over a longer repayment period. As a result it has set up Pay As You Grow.
What Is Pay As You Grow?
Pay As You Grow is a restructuring of the repayment plans available for businesses for Bounce Back Loans.
The British Business Bank, the UK’s economic development bank, announced details of Pay As You Grow, which helps UK smaller businesses that have taken out a Covid-19 emergency Bounce Back Loan to manage their cashflow and have a better chance of getting back to growth.
Originally announced by the Chancellor of the Exchequer in September 2020, Pay As You Grow (PAYG) was originally put forward in September 2020 to enable businesses who have started repaying their Bounce Back Loans to:
- request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
- reduce their monthly repayments for six months by paying interest only with this option available only up to 3 times during the term of the Bounce Back Loan
- take a repayment holiday for up to 6 months with this option available only once during the term of the Bounce Back Loan.
Businesses that have taken out a Bounce Back Loan and who want to take advantage of Pay As You Grow can seek to use all or select some of these three options during the period of the Bounce Back Loan. The question is how rigorously will these repayment plans now be?
It is said by the government British Business Bank that lenders will now start to talk about Pay As You Grow (PAYG) options to Bounce Back Loan Scheme borrowers 3 months before repayments are due to commence. These Bounce Back Loan lenders will apparently seek to inform their customers about how their repayment plans may change in accordance with the options that they select under the Pay As You Grow scheme. Businesses first began to receive BBLS loans in May 2020 and the first repayments will become due from May 2021 onwards.
Will There Be Further Opportunity To Restructure Bounce Back Loan Repayments?
It is conceivable that further forbearance will be available over time if a business is insolvent and unable to stick to Pay As You Grow. It is quite possible that with the alternative that a company might have to close down or go either into Creditors Voluntary Liquidation or Administration, that further variations of such repayment plans may well be forthcoming. We will have to wait and see.
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