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Bounce Back Loans explained
During the COVID-19 pandemic the Government introduced the Bounce Back Loan (‘BBL’) scheme to support businesses through tough times. This scheme allowed companies to borrow up to £50,000 without needing a personal guarantee and provided a 12-month repayment holiday.
Now that the pandemic is largely behind us many businesses are starting to repay these loans. However, if you’re finding it challenging to manage these repayments, don’t worry—there are options available to help you navigate through this phase.
Initially it’s a good idea to review your financial situation and explore solutions to keep your cashflow on track since early intervention is often crucial when it comes to business finances. If you need assistance consider reaching out for professional advice to help you through this process.
What are my options if I can’t repay my Bounce Back Loan?
If you are struggling to repay the BBL but you believe your company is viable and will be able to repay the loan in full in the future it’s a good idea to discuss this with the company’s bankers and see if they would be open to amending the repayment terms in line with the Government’s Pay as you Grow (‘PAYG’) scheme.
The PAYG scheme was designed to help companies who started to repay their BBL’s but are having difficulty meeting the monthly repayments. The scheme offers three main lifelines to companies:
- Extending the term of the loan – BBLs can be extended from six years to ten years with the interest rate fixed at 2.5%. While extending the loan term can lower your monthly payments and ease the immediate pressure, it will increase the overall interest you pay. So, before deciding to extend your BBL it’s important to weigh the pros and cons, as it could have significant financial implications for your business down the line.
- Payment holiday – a six month payment holiday can be taken with no repayments due during this time – this can only be taken once during the term of the loan.
- Short-term reduced payment period – Borrowers have the option to pay only the interest on the loan for six months, which will reduce the monthly payments during that time. This options can be used up to three times throughout the loan term.
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Can I reduce my monthly payments on my Bounce Back Loan?
Yes, you can reduce your Bounce Back Loan repayments by taking advantage of several options. These include:
- Extending the repayment term from six to ten years to lower monthly repayments
- Delaying repayments for an additional six months
- Making interest-only payments for six months.
These options can help to ease immediate financial pressure by reducing monthly payments although do note they may extend the loan term or increase the total interest paid.
Can I extend the terms of my Bounce Back Loan?
Yes – with the agreement of the lender a BBL can be extended from six years to ten years with the interest rate fixed at 2.5%. Whilst lengthening the term of the loan will lower your monthly repayments and ease the immediate burden more interest will be paid overall. Before extending your BBL you should evaluate the pros and cons of doing so as there are likely to be significant financial implications.
Will the Government write off Bounce Back Loans?
Many directors hope that the government will write off BBLs but this is unlikely. If your business can’t repay the loan the only real option is to go through insolvency such as liquidation. During liquidation an investigation will check how the BBL was used. If it’s found that the loan wasn’t used properly you could face serious consequences. The Government is actively pursuing directors for unpaid loans and will investigate even if the company has been dissolved.
Can a company write off Bounce Back Loans?
If your company becomes insolvent and subsequently enters a formal insolvency process only then could your BBL be written off.
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Can I strike off my company with a Bounce Back Loan?
Striking off a company, also referred to as dissolving a company, is a process for closing an unwanted company and having its name removed from the register at Companies House. Whilst in theory this is possible it is not recommended as you are likely to be met with objections even if you meet relevant criteria. You can only strike off your company if it:
- Has not traded or sold off any stock in the last 3 months.
- Has not changed names in the last 3 months.
- Is not threatened with liquidation.
- Has no agreements with creditors for example a Company Voluntary Arrangement (‘CVA’)
If your company does not meet these conditions you’ll have to voluntarily liquidate your company instead although if you’re unable to repay your BBL loan it might be a sign of more serious financial issues. In such cases the best option could be to close the company through a formal insolvency process.
Due to the billions of pounds tied up in BBLs the Government is urging banks to object to any strike-off application made by a company with an outstanding BBL. An objection to a strike-off application would prevent the company from being formally closed using this method. This makes strike-off a very slim possibility for companies holding an outstanding BBL.
Do I have to pay back a Bounce Back Loan if the company is dissolved?
If a company has been dissolved despite the fact it still had debts from a BBL, HMRC or any other creditor who is owed a debt it can still make an application to reinstate the company to the register. Once reinstated you may be held personally liable for the loan repayments and may also face other repercussions for attempting to incorrectly dissolve the company.
Can I liquidate my company if it has an outstanding Bounce Back Loan?
Yes, you can liquidate a company even if there is a BBL outstanding, this becomes an unsecured debt, as the loan is not secured against company assets. A Creditors’ Voluntary Liquidation (‘CVL’) allows for an insolvent company to be closed in an orderly manner under the professional guidance of a licensed Insolvency Practitioner, such as ourselves. If you’re falling behind on your BBL repayments or worried about future payments, it’s a good idea to get in touch with us as soon as you can. We can provide an independent assessment of your company’s finances and future outlook and help you decide the best way forward.
Are directors personally liable for Bounce Back Loans?
In most cases, as a director, you’re not personally responsible for repaying your company’s BBL if the company can’t pay it back. This is because Bounce Back Loans are unsecured loans and don’t require a personal guarantee from directors. The main advantage of the BBL scheme was that the government covered 100% of the loan amount, unlike the Coronavirus Business Interruption Loan Scheme, so directors didn’t have to provide personal security.
If the directors have used BBL funds for personal reasons but the company continues to trade and the monthly repayments towards the loan are made in full and on time then the company will continue to assume the responsibility for repayment and the directors will not become personally liable while this remains the case.
Are you worried about potential BBL fraud or deemed misuse of the loan?
BBLs were made available to all SMEs in the UK across every sector and industry at the height of the COVID-19 pandemic as all sectors were experiencing different problems at the time.
BBL lending criteria were fairly broad and companies were told the loan could be used for a variety of purposes such as investing in the business, helping cash flow or providing working capital – in fact in any way which would provide an economic benefit to the business. However, it was made very clear that a BBL was not intended for personal use and by this we mean using it for personal purchases or transferring it to your personal account in a lump sum rather than taking a salary – although the loan could be used to pay staff salaries including directors’ salaries.
If you are worried that you cannot repay the BBL and may have misused it you should seek urgent professional advice. It’s far better to deal with such matters voluntarily rather than have an investigation forced upon you. As licensed Insolvency Practitioners we can assess your situation and provide options for you and your company.
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