The Bounce Back Loan Scheme helped small UK businesses during the pandemic. Launched in May 2020, it gave small businesses a bit of breathing room to cover costs. Many UK businesses are starting to face repayments. But how does repayment of the Bounce Back Loan work? What can you do if you’re struggling to repay your loan?


Small businesses could borrow anything between £2,000 and up to 25% of their turnover with the help of the Bounce Back Loan Scheme. These loans were available from accredited lenders. The Government covered any interest payable in the first 12 months. The lenders then had a 100% Government-backed guarantee to make it beneficial. Interest rates were fixed at 2,5% per annum with a repayment term of six years.


The loan scheme ended on April 1, 2021. For many UK small businesses, the repayment time has now started or is fast approaching. Small businesses need to repay the full loan amount, as well as the interest after the initial 12 months.


When does your business need to repay the Bounce Back Loan?


Businesses didn’t have to worry about repayments for the first 12 months. But once the first year is over, you need to start repaying the debt at 2.5% interest per year.


The loan repayment time is six years, including the first year when you don’t need to make payments. You also had the option to extend the loan schedule for up to 10 years.


For example, if you took out the loan on March 28, 2021, you wouldn’t have to make repayments until March 28, 2022. You would then need to pay back the loan before March 28, 2027. The final repayment date would be March 28, 2031, if you extended your loan repayments with the Pay As You Grow scheme.


What is Pay As You Grow scheme?


The PAYG scheme gives small businesses flexibility in creating a schedule for repayments. It offers your small business three options. You can:


  • Request an extension to increase the loan term from six to 10 years. The annual interest rate remains at 2.5% per annum.
  • Reduce monthly repayments for six months by only making interest payments. You can use this option up to three times during your loan term.
  • Take a repayment holiday. The holiday can be up to six months. You can use this option once during your loan term.


Businesses had to apply for the above options within 12 months of taking the Bounce Back Loan. Lenders were asked to discuss the above options with businesses when contacting them for the repayments. Opting for any of the above didn’t affect your business’ credit rating.


How much does your small business need to pay?


How much your small business has to pay depends on how much you borrowed. In general, it’s good to know that:


  • You need to pay monthly capital payments
  • These monthly capital payments stay the same but you pay less interest each month (as your total borrowed sum decreases)
  • Your first monthly payment is usually the highest


For example, if you borrowed £5,000 with the Bounce Back Loan Scheme, you would end up paying £5,317.71 if you took six years to pay. Your highest monthly payment would be £93.75.


Online calculators make it easy to check how much you need to pay. Accredited lenders tend to have free calculators on their websites. You can find these calculators from Barclays and Starling Bank, for example.


Is there a penalty for repaying the Bounce Back Loan quicker?


The Bounce Back Loan offers a great deal of flexibility. If you want, you can repay the full sum before the loan term ends. Repaying early will not cost you extra.


You can also make overpayments each month. These will lower the total amount of interest you have to pay. If you can, it’s always helpful to repay your Bounce Back Loan as soon as possible.


What if you can’t repay the Bounce Back Loan?


The Bounce Back Loan is unsecured debt. It means you won’t lose any assets if you’re unable to meet repayments. However, lenders will want to receive what you owe them, just like for any other unsecured loan. You may need to deal with debt collection agencies or have to settle things in court.


What to do to prepare for the Bounce Back Loan repayments?


If you took a Bounce Back Loan and you haven’t begun the repayments yet or you are struggling to meet them, now is a good time to get ahead. You can take these simple steps to ensure you can pay back the loan without problems:


1. Calculate your costs


First, use one of the linked calculators to ensure you know how much you need to pay. You can also contact your lender or a small business accountant for help.


2. Budget for repayments


Include your repayments in your budget. Even if you don’t need to repay yet, you still want to start budgeting for future payments. Set aside funds to guarantee you have the money when needed.


3. Make extra payments if you can


For most small businesses, it can be beneficial to repay the Bounce Back Loan as soon as possible. If you have extra money, then consider using it to repay the loan.

However, if you have any other business loans with higher interest rates, increasing those payments may be more beneficial. This will depend on your loan conditions. Talk to a small business UK accountant and see what works for you.


4. Contact your lender if you have problems repaying


If you are struggling and can’t make the repayments, contact your lender. It is always better to talk to your lender before things spiral out of control.


Get help from a small business UK accountant


If you are worried about the payment schedule, you should talk to your small business UK accountant. Professional accountants can help budget for repayments as well as navigate any tax implications your loan might have for your business.


Contact our team of online accountants if you have any questions about the Bounce Back Loan Scheme. Together we can look at your finances and create a repayment schedule that works for your business.

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