Bounce Back Loans were introduced in March 2020 at the start of the coronavirus crisis, to give many companies access to funds of up to £50,000 on extremely favorable terms to help them through the pandemic.
While these immediate loans proved to be a lifeline to many businesses who were unable to operate as normal, companies now face problems having to arrange payments in monthly repayments towards the Bounce Back Loan even though trade may not have returned to pre-pandemic levels meaning their cash flow is still a cause for concern.
The Recovery Loan Program is known as the “Bounce Back Loan Scheme (BBLS)” is designed to provide businesses with faster access to finance during the coronavirus outbreak. BBLS was closed on March 31, 2021, for new applications. BBLS financially supports businesses across the UK.
The Bounce Back Loan and any Top-Up loan that you received are offered by some banks in the UK as part of the UK Government’s Bounce Back Loan Scheme (the Scheme), which means that under the Government that scheme they can:
· Provide you with information you need in relation to your loan in a way that is clear, fair, and not misleading.
· Review your repayment record and act appropriately in line with our obligations under the scheme if you appear to have difficulties with repayments.
· If, after you have drawn down the loan, we identify or have reason to believe that you are vulnerable, consider (and where appropriate discuss further with you) what actions we can take to ensure your circumstances are accommodated.
· Not charge you any fees on the loan (including on default) or default interest, although we may continue to charge interest at 2.5% per annum if the loan is not repaid when due until such time as it is repaid.
· Allow you to repay the loan early at any time.
For As Long As It Takes You To Repay The Loan, Provide You With:
· Details of any missed repayments and what this means for you as well as what you can do to remedy the problem, in what timescales and the impact (if any) on future payments.
· Information about what action we will take if you stop repaying the loan before we take that action.
· The options available to you for help and assistance, including sources of free independent advice.
· An annual statement showing the transactions on your loan and how much is left to repay.
· Timely, clear and adequate information during the term of your loan which enables you to understand, where you fail to make repayments.
Who Is Liable For The Debt If A Bounce Back Loan Cannot Be Repaid?
Bounce Back Loans came with many appealing benefits, one of which was that the UK Government provided 100% security to the lending banks. This meant that no personal guarantee had to be given by the company directors or shareholders.
Although this may not mean much while the loan is being repaid as planned, should the borrowing company become insolvent, this Government security is extremely valuable. Because the loan is backed by the Government instead of a director's personal guarantee, if the company finds itself in financial difficulties and subsequently enters an insolvent liquidation process, the responsibility for repaying the Bounce Back Loan will fall to the Government rather than the company director.
If a company cannot afford to repay the Bounce Back Loan, the directors will only be held personally responsible for repaying the money if it can be proven they have misused the Bounce Back Loan funds.
Misuse of Bounce Back Loan funds
Bounce Back Loans were not designed for anyone's purpose but instead were offered to companies to use in any way that would provide ‘an economic benefit’ to the business during the coronavirus pandemic. This could include, bolstering its cash flow position, buying new machinery, replenishing stock, or paying staff wages.
As long as the money was spent in a way directly related to the business and its operations, it is unlikely you will be accused of misusing the funds. However, if the money was used to fund personal purchases, company directors could be personally liable for the outstanding amount if the business is not in a position to keep up with the agreed monthly repayments.
If there is any doubt as to whether Bounce Back Loan funds may have been spent in a way they were not intended, you should seek the advice of a licensed insolvency practitioner as a matter of urgency. They will be able to assess the position and advise whether personal liability for the Bounce Back Loan is something to be concerned about.
Some Frequently Asked Questions about Repaying Bounce Back Loans
The Bounce Back Loan cannot be paid immediately but I think the company has a future
If you are currently unable to pay the Bounce Back Loan monthly repayments, it does not mean the company is beyond rescue. There are several business rescue and recovery strategies that could help strengthen the cash position.
For those who owe HMRC money, a payout time agreement (TTP) can be negotiated. The TTP works as a payment plan between the company and the HMRC, with the company promising to pay all taxes due and the HMRC giving them more time to do so. TTPs typically last up to 12 months and should be set at an affordable and sustainable level for businesses. Alternatively, formal bankruptcy procedures may be more appropriate when the debt is greater and due to a large number of creditors.
When a company faces legal action, if you trust the company, it can plan the time and rest you need for the future. For those with higher debt, a Voluntary Corporate Arrangement (CVA) allows them to consolidate their debts into a single legally binding payment plan that eliminates all debt within a set period of time, typically three to five years. The administration and CVA can only be carried out under the supervision of an authorized liquidator.
If the credit cannot be repaid, can the transaction be completed?
The deal can be done with a pending repayment loan. Once cleared, the repaid loan is not treated any differently from any other unsecured loan the firm may have. This means that in the event of a bankruptcy and liquidation of the business, the loan balance will be fed back into the process.
Voluntary liquidation of a bankrupt company is handled by an authorized liquidator through an accredited voluntary liquidation - or CVL. You have a number of responsibilities during the process, including identifying the company's assets before proceeds are distributed to unpaid creditors.
In the event of a company going bankrupt, the value of creditors exceeds the value of available assets. Consequently, any debt which cannot be repaid at the formal and formal closure of the Company will be canceled in Companies House.
If this loan is not backed by a personal guarantee from the administrator, the directors/shareholders of the bankrupt company will not be required to repay the shortfall.
Need help with your loan reversal?
If a business isn't paying off a loan, or you think it might happen in the future, getting expert help and advice should be a priority. BBLS may be over, but there are still many ways to reverse a struggling business, but timely action is needed to increase the chances of success.