Bounce Back Loans: Getting ready to repay what you borrowed.

Businesses that took out the Bounce Back Loans in April 2020 are now being contacted about repayment. With many businesses still struggling with the difficult trading environment amid restrictions, here are some options you can consider if the repayments are simply not affordable.

Businesses that took out a Bounce Back Loan received up to a maximum of 25% of annual turnover, capped at £50,000 and for the first 12 months, the loans are interest-free. However, unless you pay off the full amount after 12 months, you will start to accrue interest on the balance at 2.5%.

The government have recently increased the possible repayment period from 6 years to 10 and it is worth remembering that these loans are unsecured and backed by the government. Therefore, you are unlikely to lose your home if you cannot pay back the loan in time. However, the government has stressed that failure to pay back the loan might limit your ability to borrow in the future as you will have a poor credit rating.

There are serval repayment options for these loans as outline below:

1. Repay it all now

You can repay the loan whenever you like without incurring any early repayment fees.

2. Begin to repay the loan over 6 years

The original repayment plan was scheduled over 6 years, with each payment amounting to 1/60 of the capital plus the interest on the loan that has built up that month. Please be aware that due to the way this repayment scheme is structured you will pay more in the first months than the last.

3. Extend the term so you can repay the loan over 10 years

The government have recently announced a new Pay As You Grow plan, allowing you to stretch the repayments over 10 years. This will follow the same structure as the original plan, however, there will be a total of 108 repayments instead of 60.

4. Defer your loan repayment for 6 months

Under the Pay As You Grow plan, you can request a 6-month deferral of the repayments. This can either be done immediately or later on during the term of the loan.

5. Ask to make interest-only repayments.

You can opt to pay only the interest accrued on the loan for 6 months. You have the option of doing this 3 times throughout the term of the loan.