The Government’s Covid support schemes were enormously successful with 1.67m businesses borrowing more than £80 billion through the Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loan Scheme and the Coronavirus Larger Business Interruption Loan Scheme. That money will, as with all borrowing, need to be repaid.
Economic uncertainty has remained front and centre of the UK economy following the Covid pandemic, our departure from the EU and the rapid succession of political leaders. And whilst a degree of stability has returned, interest rates and inflation remain stubbornly high, driving a cost-of-living crisis.
For those businesses carrying borrowing that can be a problem. It pays to understand how that borrowing can be restructured to ease cashflow.
Bounce Back Loans and CBILS
Businesses with Bounce Back Loans have the ability to extend repayment terms from six to ten years under the Government’s Pay As You Grow scheme. With interest rates of just 2.5% on Bounce Back Loans, compared to much higher rates from commercial lenders, that continues to represent good value.
There is also the option to take a repayment holiday of up to six months or to reduce payments for a six-month window by paying just the interest only. These options can only be taken once during the term of the loan, so choose the timing carefully.
Of course, a business will end up making repayments over a longer period of time, but those monthly repayments will be lower providing a boost to cashflow.
It is also possible to extend repayment terms on CBILS and to request a repayment holiday, but it will be at the discretion of the individual lender.
High interest rates have seen the cost of borrowing increase and lenders will, understandably, look for early signs of ‘borrower stress’, paying close attention to loan covenants and the ability of a borrower to repay.
Questions may be asked if loan repayments are frequently missed, bank accounts more frequently in overdraft, or poor information provided to lenders. Lenders do not like surprises. But they do have empathy and will look to work with a business if experiencing a restricted cashflow.
It is important, however, that a business takes advice before speaking to its bankers or lenders – in fact, lenders may take comfort from the act of having your accountant work with you when looking to ways to improve cashflow.