A number of Companies that took out loans under the Government-backed Coronavirus Business Interruption Loan Scheme (CBILS) or the Bounce Back Loan Scheme (BBLS) are now approaching the end of their 12-month interest-free period. They are, or will soon be, contacted by the lending banks to confirm arrangements for the start of the repayments.
At the end of this Bulletin we preview a forthcoming new Government support scheme (The Recovery Loan Scheme [RLS]), scheduled to launch on 6th April.
With the continuing business problems caused by Covid-19, many organisations are not in a position to start loan repayments. This is recognised by both the Government and the lenders, so additional support by way of deferrals and re-structuring is now in place.
Naturally, if your business has recovered sufficiently to meet its obligations, you may want to start the repayments as originally agreed. If you cannot make the repayments as defined in your original loan documents most lenders will offer you a range of new options. Although each lender may offer slightly different solutions, it is very likely that they will offer the solutions listed below – or something very similar. Under each option, we list the pros and cons and, after Option 3, we list potential combinations of options. Please note that we are not offering specific financial advice but simply laying out information to help you plan how to pay back your loan.
Option 1 – Ten Year Term Extension
You can extend your 6-year Bounce Back Loan term to 10 years, at the same interest rate of 2.5%.
- This may be suitable if you want to reduce your monthly repayments for the length of your loan.
- You can request an extension at any time during the term of your loan. ∙ You’ll pay back your loan at a slower rate, so the total amount you owe will go up and you’ll pay more interest over a longer-term.
If you’re considering this option you should think carefully about your ability to repay over a longer timeframe, taking into account things such as if you intend to cease trading or retire within the revised term of your Bounce Back Loan.
Option 2 – 6-Month Capital Repayment Holiday
You can choose to reduce your monthly repayments for 6 months by paying interest only.
- This may be suitable if you need short-term support but expect to be in a better position to repay in the future.
- You can switch to interest-only repayments up to 3 times during the term of your loan – this can be taken back-to-back (e.g. 18 consecutive months) or on 3 separate occasions.
- By selecting this option, you can add 6 months to your loan term each time you switch to interest-only repayments, unless you’ve already extended your term to 10 years.
- Taking a capital repayment holiday will mean you are charged more interest and your loan will cost you more overall.
- If you select this option, you’ll need to wait until the end of the 6-month period before you can use any other option.
Option 3 – A 6-Month Full Repayment Holiday
You can request a 6-month full repayment holiday (both capital and interest). ∙ This may be suitable if you need short-term support but expect to be in a better position to repay in the future.
- If you select this option, you will pause monthly repayments (both capital and interest) entirely for 6 consecutive months.
- You can also choose to add 6 months to your loan term, unless you’ve already extended your term to 10 years.
- Taking a full repayment holiday will mean you are charged more interest and your loan will cost you more overall.
- Interest charged during your 6-month repayment holiday will be deferred for 6 months and spread out over the remaining term of your loan.
- Your monthly payments will change at the end of the payment holiday and the amount you owe will go up. That’s because even though you don’t make payments during your repayment holiday, interest will still be added to your loan amount and interest will be charged at the same rate (2.5% fixed per annum).
- You can use a full repayment holiday only once during the term of your loan.
- If you select this option, you will need to wait until the end of the 6-month period before you can use any other option.
Potentially Combining Your Options
You can choose to extend the term of your loan to 10 years AND request either a 6- month capital repayment holiday OR a 6-month full repayment holiday before your first repayment is due.
- This may be suitable if you need short-term support and need to reduce your monthly repayments for the length of your loan.
- Please make sure you have read information about each option before making your decision.
- This option will reduce your average monthly repayments but the total amount you owe will increase and you’ll pay more interest over a longer-term.
- If you choose to combine options, you will need to select the 10-year term extension before requesting the 6-month repayment holiday via a separate submission.
- If you’re considering this option you should think carefully about your ability to repay over a longer timeframe, taking into account things such as if you intend to cease trading or retire within the revised term of your Bounce Back Loan.
What do I need to do?
Your lender will contact you at least 2 months before loan repayments are due to start. Consider the 3 Options and the combination suggestion listed above and then start a conversation with your lender. Don’t feel under pressure to agree to any new arrangement during a first call. It’s often better to take a day or two to thoroughly think through the implications of what is being proposed. If necessary, go back to your lender with additional questions or suggestions. Once you are completely satisfied with the revised terms, be sure to check the documents that the lender will send you. Ensure that they accurately reflect what you’ve agreed verbally. Only sign them when you are 100% satisfied that you have the best arrangement for you and your organisation.
A NEW GOVERNMENT INITIATIVE – THE RECOVERY LOAN SCHEME (RLS)
The Recovery Loan Scheme ensures businesses of any size can continue to access loans and other kinds of finance up to £10 million per business, once the existing Covid-19 loan schemes close. Providing support as businesses recover and grow, following the disruption of the pandemic and the end of the transition period. Once received, the finance can be used for any legitimate business purpose, including growth and investment. The RLS is scheduled to launch on 6th April.
The Government guarantees 80% of the finance to the lender to ensure they continue to have the confidence to lend to businesses. Loans will be available through a network of accredited lenders (details to follow).
What type of finance is available?
- Term loans and overdrafts will be available between £25,001 and £10 million per business.
- Invoice finance and asset finance will be available between £1,000 and £10 million per business.
Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice finance facilities, terms will be up to three years.
No personal guarantees will be taken on facilities up to £250,000, and a borrower’s principal private residence cannot be taken as security.
You will be able to apply for a loan if your business:
- is trading in the UK
You will need to show that your business:
- is viable or would be viable were it not for the Coronavirus pandemic
- has been impacted by the Coronavirus pandemic
- is not in collective insolvency proceedings (further details about this will be provided in due course)
Businesses that have received support under the existing Covid-19 guaranteed loan schemes will still be eligible to access finance under this scheme, if they meet all other eligibility criteria.
Who cannot apply?
Businesses from any sector will be eligible to apply, except:
- banks, building societies, insurers and reinsurers (but not insurance brokers)
- public-sector bodies
- state-funded primary and secondary schools
How to apply
The scheme launches on 6th April and is open until 31st December, subject to review. Further details on how to apply and details of accredited lenders will be released in due course.
We will publish details of the RLS as soon as the Government confirms them to us.
1630 hrs 28th March 2021