You are here because you want to know Should you pay off your Bounce Back Loan . Many of you would have already received some notices from your bank advising you that your Bounce Back Loans are coming up for repayment.  A key question is should you pay them back now?

We get it, we really do. Paying back a loan can be scary and confusing. But don't worry! I've got the answers for you right here on my website.  Here's what I’ll cover in this article:  Should I pay back my bounce back loan? What are the benefits of paying off my bounce back loan early? How much will I save by paying off my Bounce Back Loan early?

Do you have a Bounce Back Loan?

The Bounce Back Loan Scheme (BBLS) was designed to enable businesses to access finance more quickly during the coronavirus outbreak.

A Bounce Back Loan is an unsecured loan that can be used to help your business get back on its feet. It’s designed for people who need cash flow but don’t want to take on more debt.  You can use it for anything from paying off debts, buying new equipment or investing in marketing campaigns.  With no set monthly repayments and low interest rates, there are plenty of reasons why this could work well for you!

I took out a bounce back loan, just in case.  I advised my clients to do likewise, either to help to get them through, or have a cash cushion just in case.

Sales are Vanity, Profit is Sanity, Cash is Reality

Cash, money in the bank keeps the wheels of your business going. Making profit is one of key business goals, but you can survive fir as time without making profit.  Cash is a different beast.   You need cash, money in the bank to pay your bills, pay yourself, pay your suppliers, investing in your business.  Furthermore, you need to keep your business wheels. If you do not have money in the bank, access to cash then, can say goodbye to your business and close the lights on your way out, you will not survive.

The first thing you should do is prepare (or update) your cash flow forecast.  Your cash flow forecast is your first tasks, your must do before making any future money decisions.  This will guide your thinking.

Your cash flow forecast will show you the way to take control of your future. It also helps protect against stress and anxiety, improving well-being in every sense!  By making better decisions about business moves such as Should you pay back your Bounce Back Loan early?

You’ve got a business to run and you need cash flow.

Cash flow is the lifeblood of your business, whatever stage you are in your business cycle. Whatever your business landscape, good or challenging, expanding, cutting back or starting up manage your cash flow.  Moreover, whether your business is private, not for profit or social enterprise manage your cash flow . Your cash flow forecast shows what money flows in and out of your business.

Managing your cash flow and doing your cash flow forecast is a challenge for many business owners.

Cash flow forecasting is an important part of managing your business’s finances. It helps you plan ahead, make better decisions about how to spend money, and avoid problems like not having enough money to pay bills or buy inventory.

Your cash flow story must have scenarios built in and modeled.  For example, paying off loans early, paying in line with repayment terms, change in how much you sell, if costs change.  It’s one big what if set of questions you are answering.

Click here for more information on how to manage your cash flow today I can help with that! Check out my FREE cashflow guide, previous blogs and podcasts.

How do loans affect your business risk?

 There is a balancing exercise between reducing business risk (gearing), your cash flow, and your attitude to risk.  Loan repayments represent an additional fixed cost to your business.  This is an issue when profits are stagnant or declining, less so when profits are on an upward curve.

There is no doubt that Business Bounce Bank Loans are relatively cheap when it comes to interest, and the payment holiday certainly provided a breathing space.

However, debt represents a business risk to you. So if your business is feeling a bit wobbly, your profits declining then you take on more risk with loans. Your bounce back loan repayments represent a fixed cost to your business.  An obligation that you've got to meet each month, irrespective of what happens.  Take that on board, do you want that extra level of fixed costs.

What types of loans are there?

Borrowing money to invest in and fund your business can be a wise move.  The use of loans varies from business to business.  For example, borrowing is common for property investors, businesses investing in equipment, next level growth, product launches and development, restructuring and refinancing.

Consider if you are you looking to buy a home?

There are two ways to pay for your mortgage. You can either make monthly payments that include the principal and interest, or just make monthly payments of only the interest. The first option is called repayment or interest-only while the second option is known as a repayment loan. Which one would be best for you? Let’s take a look at both options below.

Which type of loan should you choose?

If you want to save money on your monthly payment, then a repayment loan might be right for you. With this type of loan, your monthly payment will increase over time because more of it goes towards paying down the principal rather than just paying off the interest each month like with an interest-only loan.

However, if you don’t plan on staying in your house forever and want to keep your monthly payments low now so that they stay low later when rates go up, then an interest-only loan may be better for you since it has lower initial costs but higher long-term costs due to its lack of principal reduction.  It all depends on what is most important to you – saving money now or saving money later!

For cashflow purposes interest only is better for cashflow in the early stages, but eventually you must pay back what you initially borrowed.  The other way to pay back the lender is to take out a repayment loan.  To make life easy the lender works out one figure they want you to pay back.  A bigger impact on your cashflow but pay as you go means the debt gets less.

For calculating your profit, only interest is taken off.  Less profit means less tax, but cash still leaves your business.  With the Bounce Back Loan, like most business loans you get no choice, they are repayment loans. Loans for property investors, are more in the interest only bracket.

Paying back the Bounce Back Loans

The Bounce Back Loan was relatively cheap at 2.5%, and the repayment terms of six years generous and flexible.  There is no penalty for early repayments, one off payments.  There was a payment holiday for the first year, and the government, i.e. the public paid your interest.

Pay as Your Grow

More flexibility for repayment has been added with interest holidays and Pay As You Grow .  Pay As You Grow helps businesses who have started repaying their Bounce Back Loans to:

  • request an extension of their loan term to 10 years from six years, at the same fixed interest rate of 2.5%
  • reduce their monthly repayments for six months by paying interest only.  This option is available up to three times during the term of their Bounce Back Loan
  • take a repayment holiday for up to six months. This option is available once during the term of their Bounce Back Loan.

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

Borrowers should be aware that they will pay more interest overall if they use one or more of these options, and that the length of the loan will increase in line with any repayment holidays taken.

Your lender should let you know your Pay As You Grow options three months before your repayments start.  Your bank will inform you directly about the scheme and advise you about how your repayment options.

Check The British Business Bank FAQs for more details.

How much will your loan repayments be?

Well your bank is one source!.  Do you want to know how much your monthly repayments will be? Our FREE online loan calculator is the perfect tool for anyone who wants to work out their monthly repayments. It caters for a range of loans, including Bounce Back loans, normal repayment loans and mortgages – repayment or interest only. All you need to do is type in a few numbers and it will quickly show what you will pay. This way, you can see the impact on your cash flow before signing up!

Whether you are looking at buying a house or refinancing an existing mortgage, this calculator could help save time and money by giving you accurate estimates of what your payments would be like with different rates. Give it a go now.

Click here now to use our FREE online loan calculator today!

Conclusion

Should you pay off your Bounce Back Loan ?  It is not always a simple yes or no.  If you're not quite out of the woods, and you're not quite sure what's happening, then hang on to the loan!. Pay that small amount of interest, take a payment holiday or tap into Pay As You Grow.  If you feel that things are improving and more stable then pay back accordingly, a little or a lot.

Look at your cash flow.  Look at what the demands are what your what's coming in what's going out, check out our results.

This vlog and blog will help you make that decision.

Our FREE online business calculators are here to help you get a better understanding about your numbers, making profit, giving you options, saving you time, improving your money mindset. and setting your goals. Get a better understanding of your numbers. Type in your numbers and see what they say!

Get in touch with us to see how we can help you with your sole trader and company accounting and tax needs. For more business and finance , news, advice and tips, don’t forget to watch our weekly broadcasts, listen to our weekly podcast I Hate Numbers.

 

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