On 4 May 2020, HM Treasury announced that the Bounce Back Loan (BBL) scheme had been launched.
The BBL scheme provides financial support to small businesses throughout the UK that are losing revenue and have a disrupted cashflow, as a result of Covid-19. It is currently accessible until 31 March 2021. Under the BBL scheme, small businesses can borrow between £2,000 and £50,000 from an accredited lender.
The government committed to providing lenders with a 100% guarantee for approved BBLs and to pay all fees and interest for the first 12-months. After this initial 12-month interest free period, the borrower will be charged interest at a flat rate of 2.5% during the term of the loan.
On 8 February 2021, the government announced further detail on the Pay as You Grow (PAYG) repayment system which is aimed to provide businesses with greater repayment options under the BBL scheme. This includes pausing repayments under the BBL scheme for up to six-months (previously the repayment ‘holiday’ was only expected to be available after the borrower had made at least six repayments). This option can be used by the borrower only once.
This is in addition to the pre-existing PAYG options which allow borrowers to:
- extend the length of their loan from six years to ten years, at the same fixed rate of interest (2.5%); and/or
- reduce their monthly payments by making interest-only payments for six months. This option is available on up to three separate occasions throughout the term of the BBL.
Interest
Borrowers can use the above options individually, or in combination with each other. However, if a borrower wishes to utilise any of these options, it should be noted that more interest will be paid over the length of the BBL and any repayment ‘holiday’ will increase the length of the loan.
Rishi Sunak has described these measures as intended to give “…borrowers breathing space to get back on their feet, through greater flexibility and time to repay their loans on their terms”.
For any BBLs taken out in May 2020, repayments may be due from May 2021 onwards (subject to any repayment ‘holidays’ taken). Borrowers are being advised to wait until they are contacted by their lender about PAYG options who should be in touch three months before the first repayment instalment is due.
Please contact our Corporate and Commercial team if your business requires advice on the current support options available during Covid-19.
Hugh Strickland, Corporate Finance Partner.
Email: hugh.strickland@aaronandpartners.com
Telephone: 01743 294 120