Should you re-finance your CBILS or Bounce Back Loan?

Reading time: 6 min

Arabella McAvoy

Arabella McAvoy

Updated: May 17, 2022 at 10:19 am
If you’re struggling to pay pack your Covid loans, you’re not alone. In fact, more than a third of the UK’s small and medium- sized businesses fear they can’t repay their Covid-19 support

You might have seen the survey by EY in October. If you are among thousands of businesses that haven’t made sufficient recovery to start making repayments, what are your options?

For interest, let’s first look at the bigger picture. Taking the government support alone, businesses across the UK have benefitted from 1,670,939 government-guaranteed loans worth £79.3bn. The breakdown: £47.36 billion was borrowed in the form of Bounce Back Loans; £26.39 billion through the Coronavirus Business Interruption Loan Scheme (CBILS), and £5.56 billion through the Coronavirus Large Business Interruption Loan Scheme (CLBILS).

Although the default rates on Bounce Back Loans and the CBILS have so far been lower than expected, businesses have to deal with the combined challenges of the end of the furlough scheme and the end of banks’ emergency-assistance schemes. Not to mention the impact of Brexit on supply chains, cash flow and employment.

It probably won’t surprise you to learn that the proportion of SMEs that paid 15 per cent or more of their income to cover debt payments has increased sixfold since before the pandemic, according to a recent Bank of England report, The impact of the Covid pandemic on SME indebtedness. The report gives us some other interesting numbers, for example, it found that the share of SMEs with debt (i.e., those with a debt to cash ratio of more than 10, or those already in overdraft) has more than doubled since the onset of the pandemic, to over 30% of SMES.

Enough of the big picture, what about you? What are your options if you aren’t able to repay your Covid loans?

1. Bounce Back Loans Scheme (BBLS) – should you pay it back or re-finance?

If you have a Bounce Back Loan you can thank HM Treasury for these attractive terms, or ‘Pay as You Grow’ options:

  • you can ask to extend the term of your loan from six to ten years, at the same fixed interest rate of 2.5%

  • you can also choose to make interest-only payments for six months – you can use this interest-only option three times during the loan term

  • You can pause payments entirely for up to six months once you’ve made six months’ worth of repayments – you can use this option only once.

You can use these options individually or in combination with each other.

So with a Bounce Back Loan you have some flexibility, but should you simply pay back your loan? Maybe, but you should first bear in mind that just because a Bounce Back Loan was the most appropriate option for your business a year or two ago, it doesn’t mean it’s the best option at this stage. Have a look at the other finance options available to you – you might find one or several which provide better support. See section 3 below.

2. Should you refinance your coronavirus business interruption loan scheme (CBILS) borrowing via the Recovery Loan Scheme?

Quite possibly, yes. But let’s first look at some facts.

The first thing to note is that if you used the coronavirus business interruption loan scheme (CBILS), there are no automatic forbearance options for CBILS borrowers – unlike with BBLS (see section 1 above).  

Second, you’ll likely face higher costs due to the Bank of England’s recent interest rate rise. Most businesses that used CBILS – and some that used the coronavirus large business interruption loan scheme (CLBILS) – didn’t fix their repayment rate. Maybe you’re in this camp.

So what are you re-financing options? You might have considered taking advantage of the Recovery Loan Scheme (RLS), the government-backed scheme that replaced BBLS and CBILS when they ended in March 2021. The RLS offers loans of up to £2m (up to £10m if you applied before before the end of 2021). And, crucially, you can use the money to refinance existing debt. 

The key point here is that you might be able to save on your CBILS loan repayment costs by refinancing for a RLS loan. You might also be able to borrow more under the RLS than you have already – though the maximum you can borrow will depend on your lender’s assessment and the scheme requirements.

Sounds promising, but bear in mind that even if your business is in theory eligible for the RLS (most businesses are), accredited banks are required to assess whether your borrowing plans are viable. This means that if you’re simply looking to buy your business time, your application will probably be unsuccessful.

If you do decide to re-finance, bear in mind that the terms of the RLS are less attractive than those of the schemes it replaced. You’d be in for higher interest rates and your repayments would start immediately.

If you decide that re-financing your CBILS borrowing via the RLS is not right for you, do explore all the other finance options that might be available to you. 

3. What are your re-financing options for BBLS or CBILS?

Whether you’ve taken out a Bounce Back Loan or borrowed through the CBILS, re-financing might help you save money on your total repayment. You might also find a more suitable type of finance that suits the current needs of your business.

Remember, it doesn’t stop at the banks. If you have assets, you should consider alternative finance providers who might be happy to offer you invoice finance, asset finance, or other specialist types of borrowing.  You might also consider a revolving credit facility, which lets you borrow as and when you need to, avoiding the cash flow challenges of making monthly repayments.

You could also consider equity finance, i.e., raising money by selling a chunk of equity in your business.

Whether or not you decide to re-finance, the most important thing you can do it be on the front foot. In other words, if you think you might not be able to make your repayments, and you haven’t yet discussed this with your lender, you need to do so as soon as possible. If you engage with your lender early on, they will be more likely to help you, especially if you’re able to provide a credible plan for getting your business finances back on track.

You may even find that your lender is prepared to offer the type of forbearance options that are available under the Bounce Back Loan Scheme but, as you’d expect, this is at their discretion – they would need to take a view on the long-term viability of your business.

If you’d like a view of all the funding options available to your business and its unique needs, register with Swoop and see your tailored matches in minutes.

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Written by

Arabella McAvoy

Arabella is a former BBC business journalist who began her career as a policy analyst at the Bank of England and Financial Conduct Authority, and more recently worked in the communications and policy team at the British Business Bank.

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