Paying Back Your Bounce Back Loan

When the Covid-19 pandemic really started to impact on business, the UK Government stepped in with fast-track Bounce Back Loans (“BBLs”) to help small businesses navigate what would become a hugely troublesome period for our economy. As one of the many strategies brought into play, this managed to save tons of jobs and helped lay important foundations for life beyond Covid-19.

According to the official guidelines, any businesses who were eligible for the scheme could borrow between £2,000 and up to 25% of their turnover. Once approved, the loan was guaranteed by the Government, and no interest was added for the first 12 months. After this period, businesses would then be expected to pay interest rates of 2.5% per year.

The Bounce Back Loan has certainly provided some businesses with substantial benefits, not least the prompt accessibility and fixed interest rates. However, debts do still need to be repaid and no other Coronavirus funding was available had businesses not taken advantage of this scheme.

Early on in the pandemic, key decisions needed to be made with imperfect information and lots of uncertainty regarding the future. But did you, as director, make the right choice?

Much like any other loans, the Bounce Back Loan does need to be paid back at some stage. However, bounce back loans are company liabilities, and the directors were not required to sign personal guarantees, which means you’re not personally liable as long as the business was run according to the letter of the law.

The government will be hot on the heels of directors who applied for the Bounce Back Loan fraudulently, for example, directors who falsely claimed their businesses were solvent when applying for the scheme.

Taking out a Bounce Back Loan was probably a last gasp attempt at keeping the business going, but what happens when even this wasn’t enough to save you from going bust?

One solution may be liquidation, and if this is the case, you can still liquidate even if the company has taken a Bounce Back Loan. Upon Liquidation, the loan will be converted into an unsecured debt. The earliest Bounce Back Loans now need to start being repaid. If the business is unable to make these payments then it may well be a sign of cash flow insolvency.

If you do decide to place your company into liquidation, the bank who provided the Bounce Back Loan will be repaid by the government and as stated above, the loan would be treated as an unsecured creditor. If the director has used the BBL to pay his personal expenses and not those of the business, then this will be reflected in their Overdrawn Directors Loan Account. It is always best if this can be discussed with the Insolvency Practitioner in advance of the liquidation.

If you need expert advice on repaying bounce back loans, and the most appropriate procedures for circumstances where this may not be possible, get in contact with RG Insolvency today.