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Bounce Back Loans, Recovery Loans and “Pay as you grow”

Many of us took Bounce Back Loans (BBLs) from our banks last year. For many they were a stop-gap in hopes of more Government support to come, particularly for those that for one reason or another fell through the gaps in support. It seems evident now, that there is no other support coming, so those of us that took BBLs are ‘stuck’ with them, but it’s not all bad news, and as most of those who took a BBL will either have just started making repayments, or are soon to do so, it’s a good time to take a look at the options available.

The good news about BBLs originally:

  • BBLs were over a term of 6 years, with nothing to pay for the first year.
  • After that payment free year, the interest rate is fixed at 2.5%.
  • The loans are 100% underwritten by the Government, so there is no personal guarantee or liability for limited companies.

On top of this, Rishi Sunak announced a while back that as businesses started to make repayments, various “Pay as you Grow” (PAYG) options would be available from all lenders. There are three options, which most lenders will let you use all of if you wish to:

  1. You can request an extension to 10 years (note this is from 6 years not 5, so an extension of 4 years), at the same fixed interest rate of 2.5%.
  2. You can reduce the monthly repayments to interest only repayments for six months – this option is available up to three times during the term of the BBL.
  3. You can take a repayment holiday for up to six months. This option is only available once during the term of the BBL, and will also extend the term of the loan by six months.

There remains of course the fourth option of repaying the loan early, without penalty, but at 2.5%, unless your business is cash rich, a BBL is probably the cheapest form of working capital borrowing that is out there, and probably worth hanging on to.

For larger businesses, there are also new ‘Recovery Loans’ available. For most lenders, they require a turnover of £100,000 or more, but for those that meet that criteria, these loans are available from broadly the same panel of lenders as the BBLs, but also from others including Funding Circle, EJ Finance, Fluidly and Swoop. The loans are 80% underwritten by Government, but many lenders are still enforcing their usual affordability checks and requiring personal guarantees, in the same way as they would with any other business lending. This is also not at a fixed interest rate.

The term of loans under this scheme is capped at six years, the same as a BBL, but shorter than extended BBLs. For term loans or overdraft facilities, the minimum facility is £25,001 (hence the £100,000 turnover requirement), but there is also an option for invoice or asset finance from £1,000. For overdrafts and invoice finance facilities, the maximum term under the scheme is three years. For term loans and asset finance facilities, the maximum term is six years.

To summarise then:

  • Bounce Back Loans are worth keeping unless your business is cash rich, and you are confident it will remain so for the next several years.
  • The “Pay as you Grow” options are there if things are stickier for you, but all of them increase the amount of interest you will pay overall.
  • The Recovery Loans are probably not worth taking, unless you would be looking to take on debt finance anyway, and are certainly not worth taking to pay off a BBL, although many lenders are trying to recommend this as a refinancing option, the interest rate is higher, a personal guarantee is required, and the maximum term of the loan is shorter.

As always please contact us if you would like to discuss your specific circumstances and the pros and cons of any action you may be considering.

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