When the COVID-19 pandemic started affecting businesses last year, the government’s response included offering state-backed loans to help businesses with cash flow.
It is now over one year since banks started lending with Bounce Back Loans (BBLs) and Coronavirus Business Interruption Loans (CBILs), giving companies a years’ grace on repayments.
Lenders who offered bounce back loans in Spring 2020 are now expecting borrowers to be making COVID loan repayments, but some borrows could now be struggling with the additional loan repayments.
Pay As You Go COVID Loan Repayments
For those that are struggling, there are three PAYG options available to borrowers.
- Extend the length of the loan from six to ten years.
- Make interest only payments for six months. You’ll have the option to use this up to three times throughout the term of the loan.
- Take a repayment holiday for six months. You can only do this once during the loan.
The BBL was made available for SMEs, microbusinesses, and other small businesses looking for small loans of between £2,000 and £50,000. Lenders of this type of loan are offering borrowers six years to pay back to loaned amount, and the first 12 months repayment-free.
The CBIL loans were offered to businesses with a turnover of less than £45m and looking for up to £5m in finance.
Of course, it has been a difficult year and therefore some businesses have struggled during the pandemic, meaning they may not be in a position to continue repaying the loans.
Most businesses are likely to hit a few bumps in the road, it’s all part of the process of running a business. Bouncing back from a bad patch is important, and how you do it has to be thought about properly. Our Business Rescue and Restructure Department is here to help you, offering direct and practical solutions for when your business is in trouble.
We will work on behalf of the owner, not the business itself, and do our best to devise the best path forward for you.
If your business has an unproven or bad credit history, and if your business is struggling financially at the minute and may not be able to pay back the loans, some lenders are demanding Personal Guarantees from company directors of up to 100% of the loan.
A Personal Guarantee is when an individual takes on the responsibility for a loan ranted to a business. This is an option available to you, but it will put the company director in personal financial risk if they can’t afford to pay back to loan. It’s worth noting that the BBL and CBIL loans of under £250,000 do not require a personal guarantee.
Providing a Personal Guarantee for a business loan means that the lender will expect you to pay all (or an agreed proportion) of the remaining loan amount if the company defaults.
If you are asked to sign a Personal Guarantee, you should always seek legal advice.
Company Voluntary Arrangements
If your company does seem to have a viable future, we can work with you to keep it alive.
A Company Voluntary Arrangement (CVA) is an alternative business rescue procedure for businesses that would otherwise be looking at liquidation. It is a legally binding insolvency procedure that acts as a formal payment plan between an indebted business and its creditors. CVAs can give businesses a certain amount of time to pay back what they owe, which is usually 3-5 years.