I make no apologies for today’s news update, for it is a subject that I know a large number of you who took out one or more Bounce Back Loans need to address, and by doing so it may help some of you out there moving forward.
It is World Mental Health Day and having spoken to thousands upon thousands of people since the BBL scheme launched, I know that during the time that scheme was live, and now it has ended and you are either trying to work out how you repay that loan, whether your business will survive and the added pressure of the aftereffects of Brexit and the Pandemic, many people are finding themselves in a dark and/or alien place.
I think we can all agree the “rules” associated and attached to the Bounce Back Loan scheme were dodgy to say the least, mass confusion as to just what rules and laws that were being changed to strip away most of your legal rights surrounding those loans is commonplace, and even the rules on what those loans could be used for were also confusing to say the least.
We are now at the stage in time where many hundreds of thousands of people with those loans may have either started repaying them, or will have taken the PAYG options, with many people taking the 6 month repayment break to allow them to kick the repayment can down the road for half a year.
However, those 6 months will soon be coming to an end and that is when many people will be faced with either starting full repayments or they can of course opt to take one or more of the three available 6 months of interest only payment options.
The banks, Rishi and Co have been promoting those PAYG options, and whilst they do massively reduce the value of repayments for another 18 months, when you take the 3 x 6 months of interest only payments consecutively, the total value of what you will have to repay will increase when you take them, and there is the option to increase the term of the loan to 10 years at any time as well.
Either way, those loans will need repaying in full at some time or another and faced with many years of repaying them coupled with the problems many SMEs are facing right now, not knowing if another lockdown is around the corner, what else will appear by way of the consequences of Brexit and a million other things, I want you to spend some time today giving yourself a mental health check-up.
I say that as it is a stressful time, even if you can afford to repay your Bounce Back Loans, however some of you are coming to the conclusion without some further assistance from the Government or some major changes to the BBL scheme you are not going to be able to repay them, and that is causing sleepless night for many of you. I know that as I have spoken to enough people telling me such.
Even Rishi Admits He is Having Sleepless Nights
I was told the other day, and it was reported via several newspapers that Rishi himself admits to having sleepless nights worrying about the current situation, and lots of you are telling me you are experiencing the same.
There may come a time when things get on top of you and you start to get dark thoughts, and that is something you should never face alone.
If you find yourself experiencing those dark thoughts and things are getting on top of you then please, please take a step back.
Staring at the same four walls can wear you down, go for a drive or a walk and clear your mind and talk to other people in the same situation as you, that however is often easier said than done.
In case you are wondering, people have already defaulted on their loans, and many have already wound up their businesses and have declared bankruptcy and as for their “punishment” for doing so, well that all depends on what the Insolvency Service decide when those companies were wound up or sole traders declared bankruptcy.
If it was found that a BBL was used for personal benefit instead of being used for the benefit of the business then LTD Company Directors are being hit with long disqualifications, and a new bill working its way through Parliament will see those disqualifications being as long as 15 years.
Some Sole Traders have been given a Bankruptcy Restrictions Order (BRO) lasting many years if a BBL was found to have been used for personal rather than business purposes or they were deemed to have applied for such a loan when there were not eligible.
However, many of you did apply for such a loan and were eligible and may have used it for its intended purposes and HM Treasury did say I could be used for the benefit of the business which included paying wages, keeping the lights on etc.
In fact, to put your mind at rest I will quote what Martin Lewis has said and was told by HM Treasury on that very subject:
“Nothing in the rules stops you using bounce back to support your income”
“Now on to the technical. There is nothing in the bounce back rules stopping you from using the loan to support your income (though it’s worth checking your own tax situation and corporate structure in case anything there limits it). However, as I know a positive “you can do this” is better than a “there’s nothing saying you can’t”, we’ve got confirmation in writing from the Treasury.”
“It has confirmed there are no strict rules on what these loans may be spent on, as long as it is under the banner of working capital or investment – ie, things to keep the lights on, like debt service, bills, running costs and crucially wages. And more so, again it has confirmed you can apply for this loan even if the only reason is to support your income.”
“Bounce back loans are therefore a channel for help. The lack of repayments and interest in the first year makes these loans far more attractive for a struggling business or struggling business owner than normal finance. If things improve within a year, you can clear the loan before there’s any actual cost – and if it takes longer and there is a cost, it’s pretty cheap.”
“In fact, it’s so cheap compared to standard commercial lending, it is worth considering using this loan to pay off existing finance, to give yourself a year-long payment and interest holiday, followed by reduced cost in the longer term.”
“Of course, my general rule is never borrow more than you need to. And in principle that is right. However, for the financially self-disciplined, there is an argument that as this is interest-free for a year, granting yourself a borrowing facility now in case it’s needed isn’t risky. Take what you may need, then store it in top savings (you’re protected up to £85,000) and hopefully you won’t use it and can then repay it at no cost before the year is up.”
“But only do this if you won’t use the money unnecessarily or overly liberally. If you don’t trust yourself, don’t do it. Only borrow the very minimum you need and aim to repay as quickly as possible. Ultimately this is still debt, and debt’s like fire – used well it’s a useful tool, used badly it burns.”
How in practice to get the money out to support yourself
“This is where it gets trickier. The Treasury has confirmed you can use the money to support your income, but how? And what’s the tax impact? These are questions that for safety’s sake, you must ask your tax adviser or accountant as it depends on your exact set-up.”
“I need to be straight – this isn’t my bag. My speciality is consumer, not business finance. However, I’ve prepared some basic info you can jump off based on conversations with one adviser (I need to double-check with multiple sources – and will update in future), but again do get bespoke help.”
“The big starting point is that this loan is for working capital – for cash flow to enable you to do what you normally do, so you can use it to keep up the normal payments made. The adviser told me the main rule is “don’t take the piss” – exactly what to do depends on your structure:
“Sole traders / business owners: You can take cash from the business, quite simply because you are the business. And taking the money doesn’t trigger any tax, because you pay that based on profit not withdrawals. Then again, of course, as this loan is your loan, you’re liable to repay it.”
Limited company directors: This is more complex. The money from the loan belongs to the company, not to you. There are three main ways owners get money from limited companies:
- Dividends. They must be paid from profits and a loan isn’t a profit. But the loan (or refinancing other loans) might provide the cash flow needed to pay a dividend, if the money is not available otherwise.
- Salary. If you just want to cover your salary, the first thing to consider is to furlough yourself, but that means you can’t work, except for fulfilling your minimum statutory obligations as a director.
If that isn’t for you, using the loan money to cover your salary is clearly a purpose of working capital, so that’s fine. It’s likely to be far trickier to argue that you can increase your salary (even to cover lost dividends) as these loans have to be used for the economic benefit of the company, not the individual.
- A loan to a director. If there’s cash in the company (for example, the loan frees up other cash) then it can be temporarily lent to a director. Yet if that loan isn’t repaid within nine months, then the company will usually need to pay quasi-corporation tax at 32.5%, which is a big hit – and do watch for tax as a benefit in kind if you don’t charge interest for the loan.”
Help and Support
If you are struggling to make sense of life at the minute, worried about repaying your Bounce Back Loan or are finding things too much to bear, there are some additional support routes you can take.
The Government launched the Breathing Space or Debt Respite Scheme recently allowing anyone experience mental health issues to request a break from being contacted by those they owe money too, you can find more about that scheme on the links below:
All banks that are part of the Bounce Back Loan scheme should offer you some form of forbearance if you cannot afford to repay your BBL, in addition to the PAYG options, however from what I have seen many of them are simply referring people to a range of debt charities and debt help and advice organisations.
I have listed those below:
- Citizens Advice – https://www.citizensadvice.org.uk
- AdviceUK – https://www.adviceuk.org.uk
- National Debtline – https://www.nationaldebtline.org
- StepChange Debt Charity – https://www.stepchange.org
Just be aware the banks want their money back, and as such will, if you cannot repay your BBL follow their existing recoveries procedure, which can differ from bank to bank.
If you need to chat to someone due to you being in a dark place right now, please and I mean this personally, pick up your phone and call the Samaritans, they will listen and talking and sharing your problems may help you make sense of the world right now.
Many people will not want to do so, but keeping your problems to yourself, ignoring letters coming through the door and not reaching out for help will fuck your head up even more, so reach out for help and do it now.
Any Additional Help Coming?
As for what the future holds, well I am no Mystic Meg, there is talk from some MPs about slight changes to the BBL scheme, such as turning them into a student loan type of scheme whereby you only start repayments when your turnover reaches as certain threshold, Rishi needs to ponder that as a viable option and soon.
Writing the wretched loans off is what everyone hoping happens, but that is unlikely to happen.
Just remember, you are not alone in whatever situation you find yourself in right now, with over one and a half million BBLs approved and paid out, whatever problems and worries you have there are many others experiencing them too.
Until the PAYG options start to expire for those taking them, and the true cost of the BBL scheme is known regarding defaults that is probably when the powers that be will wake up and smell the coffee and may be prepared to offer something else as a solution.
If you can, contact your local MP and let them know you have a BBL and tell them your thoughts, problems and worries on that scheme, if enough MPs get behind potential changes to the scheme their collective voices in the chamber may get Rishi and Co to act on making such changes happen.
Please do not do anything stupid moving forward, no matter how head wrecked you may feel, there is help available out there.