Bounce Back Loans
During the Covid -19 pandemic, the UK government set up the Bounce Back Loan scheme, amongst others, to support businesses and save jobs. Providing loans of up to £50,000, which did not require a personal guarantee, often to companies that otherwise would not have received finance. They were provided by various lenders without the due diligence normally required.
The focus has now shifted to the viability of businesses to repay these loans, with many companies finding the additional outgoing is stretching their cash flow too far.
If you cannot afford to repay the Bounce Back Loan
The Bounce Back Loan was designed to be repaid by a series of monthly repayments after an automatic 12-month payment holiday. When the loans were taken out the future trading situation was very unclear which meant that whilst the loans were taken out in good faith, current trading has not yet returned to pre-pandemic levels which means that repaying this liability is simply not possible.
There are options available to assist businesses in repaying their loans called Pay As You Grow (“PAYG”). These are:-
- Take a repayment holiday for up to six months
- Reduce the monthly repayments for six months by paying interest only, which is available up to three times during the term of the loan
- Request an extension of the loan term from 6 years to 10 years at the same interest rate of 2.5%
However, the loan is like any other business loan and if you have not chosen a PAYG option and have missed repayments the lender will start proceedings to recover their money.
Fraud and Misuse of Bounce Back Loan Funds
The rules for applying for the Bounce Back Loan were that the funds should be used to provide an economic benefit to the business, such as to improve working capital, purchase stock or equipment, or to assist with paying wages. It was not meant for personal use and misuse of these funds means you could be held personally liable for repaying them. Likewise, overstating the company’s revenue to obtain a larger loan than it was entitled to could be classed as fraud. In this case, legal action may be taken for breach of director’s duties, misfeasance and disqualification as a director.
If you are in doubt as to whether you have misused the Bounce Back Loan funds you should make it a priority to seek expert help and advice. We can help with this.
If you have other debts that you can’t pay
It may be the case that there are other company liabilities, such as other loans, taxes, rent and suppliers, which means that trying to repay the Bounce Back Loan and these other debts is all too much. However, if your company has an underlying profitable business, you could consider a range of restructuring options that could ease your cash flow and rescue the business.
If this is the case, you should seek assistance from a licensed and regulated insolvency practitioner who can assess your situation and provide you with the options available. Insolvency does not need to mean the end of the road, as, if the underlying business is viable a company voluntary arrangement may be suitable.
How we can help
We appreciate that every business is different and each industry comes with its own unique challenges. The future direction of your business requires thorough discussion so we will take time to evaluate the current financial position of your business and help you explore your options as liquidating a company may not be in your personal interests if you have an outstanding Bounce Back Loan and the funds have been misused.
It is not always clear which options are the right ones for your business. The first step is to call us.