What will happen if I genuinely can’t repay my Bounce Back Loan?

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Know your options if your company cannot pay its Bounce Back Loan

Bounce Back Loans (BBLS) were introduced in March 2020 to help out struggling businesses. This period was the start of the first lockdown and that meant it was also the start of a really tough time for a lot of business owners, particularly those who worked in sectors such as hospitality.

Essentially, they offered a big lump of short-term cash that could have been used to fix some glaring financial concerns or it could have been invested with a view to long-term future planning. This amount of cash varied from £2,000 to £50,000. However, the amount that you could borrow was capped at 25% of your turnover from the previous year, or your estimated turnover.

Businesses that hadn’t already borrowed the full amount could also “top-up” their initial loan. The minimum amount that you could add onto the initial loan was £1,000.

Bounce Back Loans were completely backed by the state and required no repayments or interest within the first 12 months. After 12 months, banks charge a fixed 2.5% annual interest on top of their initial loan.

The BBLS has given out £46-billion since it came into action, helping millions of people in a time of crisis.

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Worried About Your Bounce Back Loan?

If you are worried about how you are going to repay your Bounce Back Loan, we’re here to help you! There are many people who will find themselves in a financial struggle after taking up the option of a Bounce Back Loan. Here at Business Helpline,  We can discuss all of your options and help you plan for a better future.
Call our team today on 0800 088 2142 or chat confidentially online here 
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What will happen if I genuinely can’t repay my Bounce Back Loan?

The PAYG scheme is designed to offer a little bit of wriggle room for those who might not be completely on top of their payments. Making repayments might still feel like a step too far for many. However, there are ways around this.

One of the main benefits of the BBLS is the fact that the loan itself is unsecured. This means that the loan is taken out without any collateral such as property. We wouldn’t necessarily advocate unsecured loans but, in this instance, it might be beneficial because it comes with a government guarantee because they gave 100% security to the banks for these loans. However, government backing only comes into play if a business is declared insolvent, so a trading business that is still in operation will still have to pay the money back themselves.

Therefore, while company directors should feel a little relief, they should also be aware that governmental intervention is very much the last case scenario. They will still be expected to make repayments unless the situation gets very desperate.

Can you write off Bounce Back Loans?

They can be written off because they were given on behalf of the company and not the individual. If the company becomes legitimately insolvent then the BBL will be written off through liquidation.

How can the Pay As You Grow (PAYG) Bounce Back Loan scheme help?

The PAYG scheme allows a company who has taken out a Bounce Back Loan, three main ways of reducing the monthly financial burden if they are struggling to find the money to repay what they owe. If you cannot afford to repay your Bounce Back Loan, here is how the PAYG scheme could help:

1. The chance to delay repayments for six months. This is on top of the first-year payment holiday which you will have been given when you took out the Bounce Back Loan. You do not need to have made any repayment towards your Bounce Back Loan in order to qualify.

2. You can lengthen the term of the Bounce Back Loan from six years to ten years. By doing this, you can halve your monthly repayments which could make a huge difference to your cash flow during this time.

3. You can ask to make interest-only payments for six months. This will lessen the amount of your monthly repayment for these months, while also ensuring you are not paying any additional interest as you would if you took a payment holiday.

Can I close my business with a Bounce Back Loan?

You cannot strike off a company with a Bounce Back Loan. However, you can close the business with a Bounce Back Loan if the business goes into insolvency and you need to enter a formal liquidation process.

You can go into the process of insolvency if:

▪️ A creditor forces you into liquidation but this is a long process, including a court case.

▪️ Directors push through the liquidation of the company themselves. This is known as a Creditors Voluntary Liquidation (CVL).

A licensed insolvency practitioner will go through the entire process. This means that they will identify company assets, sell off those assets for the benefit of creditors, and they will organise the whole procedure on your behalf.

The final result of the liquidation is that the company will no longer exist as a legal operator, and any debt remaining from this point forward will be written off unless it has previously been secured with a personal guarantee. A Bounce Back Loan is included in this.

Can a director be made personally liable?

A director can be made personally liable if payments are made in terms of preference as opposed to necessity. What this means is that payments were made to certain creditors while others were ignored. Using the loan to pay off certain creditors whilst simultaneously ignoring others.

A director might have also misused the bounce back loan. If the administrator or liquidator comes to analyse the situation, they could make you personally liable for that situation. Essentially, it is important that you are willing to follow the rules of the agreement when it is signed.

If you follow the agreement in good faith and knowledge, you are not likely to be left personally liable for any of the debts that come your way.

Did I mistakenly take a Bounce Back Loan?

There are two different levels of fraud: soft fraud and hard fraud.

Soft fraud is overestimating figures in order to gain access to a larger loan. Exaggerations will be based on fairly legitimate evidence. Many people will fall into this category and they will need advice on how to best deal with this situation.

If you think you are going to be accused of BBL fraud then you should immediately seek legal help. You may have accidentally overestimated figures or unintentionally mislead those offering the BBLS, so it’s important to make sure that you will be fully prepared for any negative outcome.

We can help you to understand the makeup of your situation and we can work out the best solution for your problem

A Bounce Back Loan can help you with other debts

As noted at the start, many businesses will see the BBLS as an opportunity to invest in their future. With this in mind, you might be able to come to an arrangement with HMRC. These are called Time to Pay (TTP) arrangements. You could be granted an additional 12 months to keep on top of your payments if you are able to put together a convincing cashflow forecast, highlighting where you believe you’ll be making your profit.

Some businesses may be juggling a series of loans alongside their BBL and, in that instance, a Company Voluntary Arrangement (CVA) could be the best solution. The CVA will allow a debtor to make a single monthly payment towards your creditors for a set number of years. Only a licensed insolvency practitioner can sanction your CVA and it will also have to get the consent of your creditors. You will need to provide a thorough plan that your creditors can get behind.

Are you entitled to Director Redundancy?

If you have been a director of a limited company that has been trading for over 24 months – you may be eligible for redundancy if your company is closed due to insolvency!

An average claim in the UK is £9000.

Contact our experts if you have any questions about the process.

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Bounce Back Loan FAQs

Government’s 100% guarantee is not concrete

As noted beforehand, the government’s guarantee for 100% of the BBL was seen as a major plus for potential lenders. That meant there was no requirement to provide a personal guarantee before you acquired the loan.

Nonetheless, if you cannot back up the reasoning as to why you got the loan in the first place then you could be held personally liable for it. BBLs are designed to financially improve your business and you should be able to provide evidence as to how they have done that.

On the other hand, if the loan has been used sensibly then the company’s debts will be written off through liquidation.

A Bounce Back Loan can help you with other debts

As noted at the start, many businesses will see the BBLS as an opportunity to invest in their future. With this in mind, you might be able to come to an arrangement with HMRC. These are called Time to Pay (TTP) arrangements. You could be granted an additional 12 months to keep on top of your payments if you are able to put together a convincing cashflow forecast, highlighting where you believe you’ll be making your profit.

Some businesses may be juggling a series of loans alongside their BBL and, in that instance, a Company Voluntary Arrangement (CVA) could be the best solution. The CVA will allow a debtor to make a single monthly payment towards your creditors for a set number of years. Only a licensed insolvency practitioner can sanction your CVA and it will also have to get the consent of your creditors. You will need to provide a thorough plan that your creditors can get behind.

Inappropriately using the Bounce Back Loan Scheme (BBLS)

Bounce Back Loans were open to all SMEs across Britain when the global pandemic was causing financial unrest. Different sectors were having different issues so the government made the loan flexible for all businesses.

For some businesses, the Bounce Back Loan was used as a way of investing for the troublesome months ahead, allowing trade to continue, while others used it to tackle existing company debts. There was no one-size-fits-all way to use the loan and both of these methods were appropriate.

Bounce Back Loans could also be used to pay existing members of staff – including directors, dividends, and regular employees. However, rules around taking unlawful dividends and ensuring sufficient profits existed in the business, still applied.

Bounce Back Loan fraud or misuse

A big issue with the Bounce Back Loan would be using it for personal gain as opposed to the benefit of your company. This could be by spending it on personal purchases without taking it out of the business as a salary or dividend.

Misusing Bounce Back Loan money in this manner could have serious consequences if the business is unable to repay the loan in the future. If your company enters liquidation and you are found guilty of misusing the Bounce Back Loan, it could be seen as fraud. You would then be held personally liable for the outstanding balance.

What happens if I have accidentally misused a Bounce Back Loan?
If your company is still okay to make the necessary Bounce Back Loan repayments then you will be fine. You will not be asked what the money was spent on. It is only when a company is forced to close that the spending of your loan will be investigated.

If your company is forced to stop trading and close down with an outstanding Bounce Back Loan, this will also cause a big investigation into the spending of those funds. If you spent funds on personal luxury then you will be held personally liable for the debt. At the end of the day, that loan was designed to better the performance of your business and, in turn, that should allow for a repayment to be made.

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