Further to our blog discussing the key points and aims of the Bounce Back Loan Scheme (‘BBLS’), businesses first began to receive loans under BBLS in May 2020 and the first repayments (subject to any repayment holidays) are due from May 2021 onwards.

On 10 November 2020 the government announced that participating lenders are able to offer ‘top-ups’ to smaller business’ existing bounce back loans, provided that they originally borrowed less than the maximum available.

Summary of the Bounce Back Loan Scheme

The government backed scheme allows smaller businesses to gain access to a six-year-term loan from accredited lenders of between £2,000 up to 25% of business turnover to a maximum of £50,000. Businesses are not required to make any repayment within the first 12 months by way of a capital repayment holiday, during which period the government will pay interest and loan-related costs. Thereafter, the government will agree a low standardised level of interest which will then be applied to the remaining loan term. The government guarantees 100% of each loan and early redemption is permitted without early repayment fees.

The BBLS scheme runs alongside the Coronavirus Business Interruption Loan Scheme (CBILS). The deadlines for applications for government-backed loan schemes have been further extended until 31 March 2021. For further information on how to apply for a BBLS loan, please see our blog: Bounce back loans for smaller businesses.

Top-ups

For whom are top-ups available?

A top-up is available to smaller businesses which already possess an existing bounce back loan, provided that they originally borrowed less than the maximum amount available to them. Top-ups are only available from the borrower’s existing BBLS lender.

How much can be topped-up?

A top-up is calculated by taking the lesser of £50,000 or 25% of the annual turnover certified in the original BBLS application form, minus the original loan value. The minimum top-up amount is £1,000.

For example, a borrower certified an annual turnover of £100,000 on the original bounce back loan application. At the time, it took a loan of £15,000 (15% annual turnover). It can now apply for a further £10,000 (10% annual turnover) bringing the loan to the maximum 25% of the originally certified annual turnover.

Any top-up taken will not change the capital repayment holiday period, which runs for 12 months from the initial drawdown date on the original bounce back loan.

For example, the initial drawdown date of the original loan was 1 July 2020 and the drawdown date of the top-up was 15 November 2020, the capital repayment holiday will run to 30 June 2021.

How to apply for a top-up

Borrowers will need to obtain and complete an application form from their existing BBLS accredited lender.

This application form will require borrowers to indicate the amount of top-up requested and to again provide certain declarations set out on the original application form.

Repayment

On 8 February 2021, the government announced further details of the Pay as you Grow repayment system which intends to provide flexibility for businesses repaying loans under the BBLS, assisting them to manage their cashflow and increase their chances at returning to growth.

Repayment via the Pay As You Grow System

Whereas previously, businesses were entitled to a repayment holiday after six monthly repayments had first been made, businesses are now able to delay any repayments for a further six months from the first repayment. This means that businesses may now choose to make no loan repayments until 18 months after the loan was originally taken.

BBLS borrowers are able to tailor their repayments in accordance with their individual circumstances, by extending the length of their loans from six to ten years, having the effect of halving the monthly repayments, and making interest-only payments for six months. Borrowers will have the option to use the latter option up to three times throughout the loan term.

As above, the government will also cover interest and loan-related costs for the first twelve months.

Correspondence from Loan Providers

BBLS borrowers should expect correspondence within three months before the first repayment is due, setting out the following options:

• Extending the loan from six to ten years
• Making interest-only payments for six months, with the option to use this up to three times during the loan term
• Pause repayments entirely for up to six months

For details of the other government backed loan schemes available and for general business-related Coronavirus updates why not sign up to receive email notifications from us as and when new guidance is received from the government or other regulatory bodies by visiting our Coronavirus (COVID-19) – Legal advice and guidance page.

If you would like to discuss any of the loan schemes, or have any other funding enquiries, please contact a member of the Banking and Finance team and we will be delighted to assist you.