Should I pay back my bounceback loan?
It’s a question on many business owners’ minds this month, and there are a few factors to consider, writes Complete Commercial Finance’s Karl Lanham
Most business owners know the key dates for paying taxes and staff, but this year many have a new date to add to the calendar as their Business Bounce Back Loan (BBL) becomes due for repayment.
Announced by Chancellor Rishi Sunak on 27 April 2020, last year the BBL scheme advanced more than £46bn to firms with, on average, three loans issued every minute.
For many, the scheme’s 12-month, interest-free period comes to an end shortly and an estimated 42,000 companies have already applied for an extension of up to 10 years or a repayment holiday, with others applying for the government’s new ‘pay as you grow’ option.
NatWest alone has reported that 75 per cent of its 14,000 BBLS borrowers have applied for the ‘pay as you grow’ option.
Simultaneously, it has also been reported that many businesses have yet to spend their BBL, which sits intact in their bank account, and pundits have speculated that this could be the reason for a relatively low initial uptake of the replacement Recovery Loan Scheme (RLS), which Sunak announced in his budget earlier this year.
With a modest 2.5 per cent interest rate due on the BBL, many owners are taking the view that this is a once in a lifetime opportunity to use the loan to support cashflow or as a fund to grow their business at relatively low cost.
While this is a route for many companies, it’s important to understand that a BBL will be considered and may affect future borrowing, should the business require a further loan.
We are still understanding how lenders will consider a firm’s BBL when reviewing future lending applications, but the terms of the RLS indicate a return to a more traditional stress-checking process and firms which choose to defer their BBL or opt for a ‘pay as you grow’ route may be sending an indicator that they are not in a strong financial position.
Another caution for business owners is to ensure the BBL remains within the firm – we have already seen instances of company directors using the loan to fund home improvements or purchase a new car for private use, but the loan belongs to the business and should be used accordingly.
While the BBL has been a life-saver for many firms during the pandemic, it is undoubtedly a moment to look forwards and develop a long-term plan which supports your business’ growth.
As part of our recently launched Business Survey of local firms, we ask how COVID-19 has affected business confidence and already the results indicate that, while we are keenly setting our sights on ‘Freedom Day’ on Monday, June 21, the effects of the pandemic will be felt by companies for some time to come.
Every company’s experience is different, and it pays to speak with a business finance specialist to ensure you make the right decisions now to avoid any future potholes in the road to recovery – alternatively, what seems to be a low-cost option now, could ultimately cost your company dear.
To participate in Complete Commercial Finance’s Business Survey, visit https://www.surveymonkey.co.uk/r/Z3HWJJ9
n For more information, contact Karl Lanham at Complete Commercial Finance on 01553 611619 or visit ccf.finance