Payback time
10 February 2021
The government introduced financial support measures early on to help businesses impacted by the coronavirus pandemic, which have been a lifeline for many.
One is the Coronavirus Business Interruption Loan Scheme (CBILS) which provides lenders with a government-backed guarantee of 80% on losses that might arise on loans of up to £5m. It includes business loans, asset finance, invoice finance and business bank account overdrafts.
The second main source of help is the Bounce Back Loan Scheme (BBLS), under which smaller businesses can borrow between £2,000 and 25% of annual turnover up to £50,000, with the government guaranteeing 100% of the loan. Both schemes have been extended to 31 March for applications.
Borrowers do not have to make repayments for the first 12 months, meaning that many will find their initial payments become due from the start of May, the anniversary of when the first loans were taken out.
Many companies will need to ensure that they are ready, and not just hirers, but their trade customers as well. Russell Green, co-owner of the financial consultancy Amplify says that firms need to think about how they will repay the loans alongside any others they might have.
“There will be companies who needed the CBILS money to stay afloat using it to cover overheads and to keep their business ticking over, while on the other hand there are firms who will have used it to boost their business, for example by buying a piece of kit they would normally have hired.
“Both approaches are in the spirit of the scheme which was meant to keep businesses open. It depends on where a firm was in the trading cycle when the pandemic struck.
“If people are unsure of what to do about making repayments, they should talk to somebody,” says Russell. “It could be their accountant, a business adviser or a financial consultancy like ourselves who can identify what the options are. We’re all in this together to help businesses survive.
“There might be savings that can be made in the business, new contracts to be won or other opportunities that become available. The answer isn’t always to raise more debt: it’s more a matter of working out where you need to be and how to get there.”
There is also the possibility of businesses overtrading as they try to come back after a difficult period but find resources are stretched. Hirers need to know who they are working with and who their customers are – a topic addressed earlier on the blog when we spoke to Emma Miller of the Top Service credit reference agency.
• On 8 February, Chancellor Rishi Sunak introduced more flexibility for firms repaying Bounce Back Loans. This includes extending the length of the loan from six years to ten; making interest-only payments for six months, with the option to use this facility up to three times throughout the loan; and pausing repayments entirely for up to six months.
About £45bn has been borrowed by more than 1.4 million small firms under the BBL scheme. There have been concerns over fraud, as well as repayments. The National Audit Office has suggested that up to 60% of such loans may never be repaid.
Photo: Alaur Rahman/Pexels
