The aim of this helpsheet is to assist small businesses who have taken out BBLS loans and now face the prospect of starting repayments. It provides some questions for small business owners to consider and pointers to further sources of help.
When will your lender contact you to start BBLS repayments?
Lenders are now starting to contact borrowers who took out bounce back loans in the spring of 2020 to remind them that payments will start becoming due, and to provide information on their Pay As You Grow (PAYG) options, which are:
- Extend the length of the loan from six years to ten years.
- Make interest only payments for six months, with the option to use this up to three times throughout the loan.
- Take a six month repayment holiday. This option is available once during the term of the loan.
Borrowers will be able to use these options either individually or in combination with each other. They also have the option to fully repay their loan early and will face no early repayment charges for doing so.
Lenders are sending these letters in a standard format to borrowers, starting three months before repayments are due to commence.
What you need to consider when deciding your BBLS repayment options
Will you struggle to repay your loan?
Your lender will look to understand whether your business may struggle to repay your BBLS loan. To determine if a business could struggle to repay, the lender will likely ask you if you would like to make use of any of the PAYG options.
Before you can finalise your decision on which option to select, you should state if the following statements apply. If they do, you may be flagged as in potential difficulty:
- My business has formally ceased trading; or
- Having considered fully the PAYG options and (my directors’ duties and) my business’ financial position, I have concluded that I am/my business is in financial difficulty and I would like to discuss with you my circumstances.
Borrowers which answer yes to the first point should hold a specific conversation with the lender on their circumstances. If the lender can verify that the business has permanently ceased trading, rather than simply having paused trading for a time, they may choose to move the loan into their recoveries process.
Borrowers which answer yes to the second point should move into a conversation with the lender on their circumstances, to understand which of the PAYG options may assist their financial position.
Lenders may also write to borrowers about other lending outside the BBLS.
How can you reduce interest costs on your BBLS loan?
If you can afford to stick to the repayment schedule rather than making interest-only payments, extending the loan or taking a payment holiday, you will pay less interest over the life of the loan. If it makes sense for you to repay the loan early, which you can do without penalty, this will also reduce interest costs.
What repayment option is best for you?
If you will struggle to meet your loan’s scheduled repayments in full from the first month, you should consider carefully which of the options (or combination of options) set out in your lender’s letter is best for you. Lenders will be available to help or provide further explanations for example on the total costs involved - but it will be your decision.
Questions to consider are:
Is my business viable?
If your business has already ceased trading or does not have a route to a viable future, then it may not be appropriate to use the PAYG options. Your business is still liable for the loan, so in this situation, your loan would move directly into lender collections and recoveries processes.
If I have other borrowings as well as my BBLS loan, can I pay back all my debt in line with repayment schedules?
If you can’t, you may need to consider which debt your business should prioritise. Remember the interest rate on your BBLS loan is set at 2.5%, and the BBLS lenders cannot make recoveries by repossessing your home or other personal assets. If repaying your BBLS debt would cause significant difficulties with meeting essential personal expenses, you should raise that with your lender.
When thinking about future financing options, you should be aware that in the budget on 3 March 2021, the Chancellor announced a new Recovery loan scheme that will provide Government support for further lending to business. The new scheme will provide a Government guarantee for 80% of this lending, in order to give confidence to lenders, and will be open from 6 April to 31 December 2021. Minimum loan size requirements and terms will vary depending on the purpose of the loan.
If I can afford some repayment of my BBLS debt, but cannot yet meet the full level of repayments due, what should I do?
Your lender’s letters to you will set out the different PAYG options available, and these will include information (either illustrative examples or specific to you) on what they mean for the overall level of interest you will pay and the timing of payments. You will probably want to balance the overall cost over the life of the loan, against the need to make payments as they fall due over coming years.
You may wish to take into account that:
- Taking interest or capital payment holidays, without extending the term of the loan, will increase the amount of your monthly repayments afterwards.
- Extension of the loan will reduce your monthly payments because you are paying back the capital amount over a longer period; but the fact you are paying for longer will increase the overall cost of the loan. You should be confident that your business will stay trading for long enough to pay off the loan.
- You will want to be confident that as your business recovers and its revenues grow, you will be able to afford the revised payments as they become due, along with other expenses. Cashflow forecasts for your business may be a helpful tool to support your thinking. Our guidance ‘COVID-19: Six actions for finance professionals on cash flow’ shares six practical actions you may wish to consider when considering cashflow to support your businesses through the COVID-19 crisis.
What protections are available to me?
Depending on your type of business and the size of your loan, your lender will comply with standards set either by the Financial Conduct Authority (FCA) or the Lending Standards Board (LSB). The FCA has issued guidance on how lenders should act to treat customers fairly under its rules. The LSB also issued an update on how the Standards of Lending Practice for business customers give effect to the requirements of the BBLS.
The FCA guidance applies to sole traders and small partnerships which have borrowed less than £25,000. Under the FCA guidance, lenders and debt collectors acting on their behalf should ensure:
- they have due regard to the interests of their customers and treat them fairly.
- customers are treated with forbearance and due consideration. For some borrowers, this may mean providing additional support to that envisaged under PAYG.
- they have clear, effective and appropriate policies and procedures for dealing with customers in payment difficulties and for those who they understand or reasonably suspect to be vulnerable.
- borrowers are allowed time to consider their options and, if necessary, seek debt advice before making a decision on the support they take. Lenders refer borrowers to debt advice if this is appropriate. Lenders do not pressure borrowers into repaying their debt within an unreasonably short period of time.
Normal complaints rights are available to borrowers who are dissatisfied with the service they receive from their lender.
The LSB’s Standards of Lending Practice for business customers, and the supporting Information for Practitioners, have been temporarily updated to recognise that for lending under the Government schemes lenders may not be able to apply in full effect some provisions within the Standards as certain aspects of the products have been determined by Government. The Standards, including temporary updates, continue to be recognised by the FCA.
The LSB recognises that the PAYG measures will provide borrowers with a consistent range of support and emphasises that in offering this support, lenders should continue to adhere to the Standards, where applicable. This is particularly important for the treatment of customers in financial difficulty or for those customers identified as being in vulnerable circumstances, to ensure they receive appropriate support and fair treatment.
Potential sources of help
There are a number of sources of help which could assist you to make the right decision for your business. These include:
Your lender
Lenders have set up teams, online and telephone capabilities to help support you. They recognise that many borrowers are likely to fall into difficulties repaying their loans and are setting up teams to help. Your lender will let you know what they have set up and how to contact them.
Your financial adviser or accountant
Professional advisers and accountants can help you to better understand the viability of your business, and its forecast cashflows, which may be important in informing your decision and supporting your discussion with your lender. They will want to understand how your business and its prospects have evolved from the information you gave to the lender at the time you took out your BBLS loan.
Debt advice bodies
Self-employed, sole trader and small businesses may be able to get impartial, free debt advice from not-for-profit debt advice bodies. Your lender should help you to access these if appropriate.
Business Finance Guide
The Business Finance Guide is a completely free and independent source of information on the forms of finance available to business owners, management teams and their advisers.
Restructuring and insolvency practitioners (IPs)
Insolvency Practitioners (IPS) can provide advice on business restructuring and insolvency, should you need to discuss these options with your lender.