FINANCE
1 in 10 Bounce Back Loans in arrears
A Freedom of Information request to the British Business Bank by Purbeck Personal Guarantee Insurance , the U . K .’ s only provider of personal guarantee insurance ( PGI ) to small business owners has uncovered the scale of debt and arrears associated with the Bounce Back Loan Scheme ( BBLS ). The findings have been revealed as the Financial Conduct Authority calls on lenders to treat SMEs fairly when recovering debts of up to £ 25,000 which fall under the consumer credit act . The data revealed by Purbeck shows that BBLS loans in arrears as of end of June 2022 , all exceed this amount , with the average loan £ 29,357 .
BBLS – 12.4 % now in arrears
• As of 27th June 2022 , 193,377 of BBLS are in some form of arrears . This makes up 12.4 % of the total number of BBLS advanced .
• In value terms , this equates to £ 5.7 billion of loans by capital outstanding ( 12.0 %).
• Notably , 151,587 ( 9.7 %) are in 90 + days arrears with a loan on average of £ 29,660 .
• The outstanding capital is £ 4.5 billion .
• The first 12 months of fees and interest were paid for by the UK Government . In total £ 984 million was paid for by the UK Government in respect of interest on BBLS facilities .
CBILS – Average loan in arrears £ 164k
• The Coronavirus Business Interruption LoanScheme ( CBILS ) was designed to provide financial support to smaller businesses across the UK that were losing revenue and seeing their cashflow disrupted as a result of the Covid-19 pandemic .
• As of 27th June 2022 , 1,720 of CBILS are in some form of arrears ( 0.1 %) of the total number of CBILS advanced . In value terms , this equates to £ 282 million of loans by capital outstanding ( 0.6 %).
• The average loan in arrears is £ 164k .
• £ 1.4 billion was paid for by the UK Government in respect of interest on CBILS facilities . An additional £ 271 million was paid for by the UK Government in arrangement fees paid to lenders .
How to manage Bounce Back Loan
repayments by Clare Bowen , Director for Monahans
Bounce Back Loans helped hundreds of companies through a very difficult situation throughout the pandemic . The scheme took a huge weight from many business owners ’ shoulders .
Recovery Loan Scheme ( RLS ) – One in five loans backed by a personal guarantee : To date , £ 3.7 billion of RLS facilities have been agreed ( 18,371 by number ) of which , £ 716 million are supported by Personal Guarantees as part of the security ( 19 %). The average loan balance for Personal Guarantee supported facilities was £ 538,000 compared to the average loan balance across the scheme in totality of £ 201,333 .
Todd Davison , Managing Director of Purbeck Personal Guarantee Insurance , said , “ The ease with which business owners and directors were able to secure bounce back loans , with six years to pay off the debt , no personal guarantees and no fees may have come back to bite the UK Government which is now facing the prospect of close to
£ 5.5bn lost to the scheme in arrears , fees and interest . In contrast , accessing CBILS was more restrictive with lenders permitted to request personal guarantees on loans of £ 250,000 and over .
“ Now that the UK Government has confirmed it is extending the Recovery Loan Scheme , with personal guarantees remaining a core feature , business owners will need to be prepared and seek advice on how they can mitigate the risk , with insurance being an increasingly common option . Indeed , at Purbeck we have seen demand for Personal Guarantee Insurance up 125 % in Q2 2022 vs Q2 2021 .”
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However , one issue we are now seeing is that many businesses used this loan as a short-term fix without thinking about the longer-term implications . Many are struggling to find the means to be able to pay it back . Indeed , during a survey we ran on Twitter of 293 business owners , nearly four in 10 reported to be concerned about repayments . Usually , when a business takes out a loan , it is used to invest in other assets such as technology and tools – all items that will generate more revenue . Of course , with the Bounce Back Loan , it wasn ’ t a revenue-generating tool , it was a survival tool . It ’ s becoming clear that the weight that was taken from them at the start of the pandemic is being piled back on . So , how can businesses support themselves with repayments ?
Extend the payment term Most businesses will have taken out the loan with the expectation of paying it back in six years . If needed , this payment term can be extended to 10 years without a change to the rate of the interest being charged .
If you do look to extend the payment term , ensure to control what you can by completing regular cashflow forecasts and having a granular understanding of your incomings and outgoings .
Talk to your other creditors As a business , it ’ s very likely that you may have other debts that you are paying off in one guise or another . Ensure to have open conversations with those creditors / lenders to explore whether you can arrange new payment plans with them .
Request a six-month holiday from payments If you are in a tight spot , you can request a payment holiday from your creditor . If granted , you ’ ll make interest-only repayments and this could be a way to substantially cut down on monthly outgoings .
While it may be a worrying time for you and your business , if you ’ re struggling to keep up with BBL repayments , there are steps you can take to help ease those financial pressures . If you need advice or would like support in considering the options available to you , ensure to engage with a professional who can help you through . If you would like to chat , please get in touch . Email me at : clare . bowen @ monahans . co . uk
Through all of life ’ s ups and downs , we ’ re next to you every step of the way .
32 Monahans www . tbeswindonandwilts 2022 BTE Wlits Aug . indd . co 1. uk
01 / 07 / 2022 14:39