Bounce Back Loan Repayment Options; Changes to Company Dissolution Rules; and Banks Dominating Lending
Are you soon facing your first Bounce Back Loan repayment? Many businesses have just paid their first repayment or soon will and are concerned with cashflow still tight. Opening our latest Bulletin, we look at repayment options under the Pay as You Grow Scheme designed to ease your cashflow burden.
A government Bill has been proposed to close a loophole in the insolvency process where Directors can dissolve their company with the aim of walking away from their Bounce Back and CBILS loan liabilities. The Bill, if passed, could see Directors facing sanctions if found guilty of fraudulently dissolving businesses.
To close, a new report highlights that after losing a share of the business lending market, High St banks are again becoming dominant lenders over the alternative lenders and Challenger banks. Is that a good thing?
Here also is the transcript of this latest Bulletin…
Bounce Back Loan repayment options; focus on directors who dissolve companies to avoid repaying government loan schemes; and return of the dominance of big banks in lending.
All of this in the latest Business Finance Bulletin.
Bounce Back Loan Repayments: Pay As You Grow
Are you one of the 1.5 million business owners that took out a Bounce Back Loan and you took it fairly early on? Well, by now, you will have had a letter from the bank advising that your payments have already started or will shortly be due. Many business owners are beginning to realise about the extent of the liability they took on. We’re certainly having more conversations with business owners who were not realising they’ve got to start paying this debt back.
A recent survey from Lloyds Bank highlighted that 29% of business owners didn’t realise that the government has now launched a new scheme called Pay As You Grow. Under this scheme, you’ve got a couple of options in order to lessen the pain of this first repayment. Obviously you’ve had this money now in your bank account for 12 months, and you’ve got a shock when this first repayment is coming due.
So what are you options? The government’s given you three things you can do. First of all, you can extend the term of the loan from 6 years up to 10 years. You can either take an interest only period for six months, or you can take a complete repayment extension for six months. So this is going to give you some breathing space.
Many people say this is not going to affect your credit record. Well, it’s kind of true in that it won’t go formerly on any of the credit reference agencies, so your record is clear from that point of view. However, do bear in mind, if you are taking one of these extension options, from the bank’s point of view in its internal records, you are flagging yourself up as a business that technically is still in distress. You’ve held your hand up and say, I can’t meet the payment and I need interest only; I need a complete holiday for six months or extend my loan for 10 years.
You are really sending a signal to that lender that all is not well.
Similarly, when you go to apply for finance with an external lender or third party lender, they will also be asking the question, when is your Bounce Back Loan repayment due? And again, if they’ve seen that you’ve taken advantage of this Pay As You Grow scheme, they will also take a step back and say, “Hey, you’re saying that you’re still in trouble.”
So whilst these schemes are great, just bear in mind, the potential impact or the unintended consequence asking for this forbearance can have. Of course, as always, if you are in trouble, make sure that you seek professional advice from your accountant or perhaps an insolvency practitioner, if your business is in that much of a kind of financial distress.
Whilst the scheme is great, just bear in mind, the unintended consequences that could happen if you request one of these forbearances.
Changes to Company Dissolution Rules
As I mentioned in the first section, the Bounce Back and CBILS loan repayments are now starting to be debited to business bank accounts, and the realization, as I said previously, it’s beginning to dawn on business owners, the liability that they’ve taken on and in many cases cashflow may still be a bit tight.
Regretfully, there may be some business directors out there who may think that I know what I’ll do, I’ll just dissolve my company and because I have no personal guarantees on the Bounce Back loan, or my CBILs (if you’ve taken it up to £250,000) why don’t I dissolve my company? That’s it job done. I walk away.
Well, the government is obviously wise to this because they’ve tabled a bill in parliament called the Ratings, (Coronavirus) and Director Disqualification (Dissolved Companies) Bill. Why don’t they come up with more snappy names?
This bill is designed to give the Insolvency Service the ability to investigate Company Directors, where they believe the company has been deliberately dissolved in order to avoid paying back any of the government loan support schemes. If you are found guilty of doing this, you could face a ban from being a Company Directory for up to 15 years. It’s designed to stop directors closing one company down and immediately starting a similar company under a different name the very next day.
If you are thinking of trying to walk away from this liability by dissolving a company, watch out, this really could come back and bite you.
As I mentioned, the previous segment, if you do want to take some advice, make sure in this situation, you go and seek advice from an insolvency practitioner. These are the ones who can guide you through this process. Don’t try to be clever because it really will trip with you.
Dominance of Bank Lending
In 2010, When I established business loan services, we were very much in the middle of the credit crunch. From 2008, 2009 the main high street banks effectively withdrew from supporting small businesses with finance. That of course left the door wide open for the rise of the new alternative lenders. And these guys have really been championing the cause for small business finance, taking a large share of the market.
When 2020 arrived, the Coronavirus really is up ended this kind of evening out of competition issues where the banks had the dominance in the marketplace.
A new reports has come out by Social Market Foundation and Metro bank. They’ve worked out that pre-pandemic, the alternative finance providers had 48% of gross new lending to businesses. Post Corona virus, that’s now fallen to 31%. So we can see that the big banks are starting to come back into play.
However, it’s more by default than design because with the Bounce Backs and CBILs loans, very many of them have come from the high street banks. But the danger here of course, is as demand for finance remains quite muted, some businesses are sitting on a lot of cash and still have money left over from the Bounce Back Loans and CBILs. It means that some of these smaller alternative finance providers may struggle to make inroads into the marketplace if demand for finance remains muted.
The danger of course, is that some of these alternative finance providers may close their doors and that will be a shame because the high street banks naturally just do not have the appetite to support small businesses.
Let’s see what happens over the next 12 months or so and let’s hope that the marketplace still remains competitive when it comes to access to funds.
That’s it if for another Bulletin. I hope you enjoyed watching and if you did, don’t forget to give it a like, a share and of course, subscribe to this channel.
That’s it for another week. I look forward to being with you next time. In the meantime, have a great and successful week.