Can’t Repay Your Company’s Bounce Back Loan? See The Options
The government introduced the Bounce Back Loan Scheme (BBLS) – with emergency finance of up to £50,000 without a personal guarantee* – to support eligible businesses through the Covid-19 pandemic. However, since the 12-month payment holiday ended, many companies have experienced cash flow issues, and have been unable make the monthly repayments. If this sounds like you, then carry on reading to understand your options, or contact us today – we recommend seeking advice first before speaking to an Insolvency Practitioner.
*Note that sole traders differ to limited companies and will be held personally liable. Loans for sole traders can only be written off in the case of personal bankruptcy or an Individual Voluntary Arrangement.
Pay As You Grow (PAYG) Scheme for Bounce Back Loans
Found that trade hasn’t yet returned to pre-pandemic levels? If your business needs additional help and time to repay its Bounce Back Loan, the government’s PAYG scheme will help to reduce your monthly payments, in three ways:
- Postpone repayments: in addition to your 12-month payment holiday, you can postpone repayments for six months (a total of 18 months). You needn’t have made any repayments yet to qualify.
- Increase the Bounce Back Loan term: to halve your monthly payments, you can increase your Loan’s term from six to ten years.
- Request interest-only payments: for six months, you can request interest-only payments without accruing additional interest (like a payment holiday).
Consider Restructuring Your Limited Company
If your business is still profitable, but struggling to make the loan repayments, you could consider a range of restructuring and refinancing options to ease immediate cash flow issues. It’s likely that the Bounce Back Loan is only one of several debts that your company owes, so you could explore negotiations with other creditors to reduce your monthly outgoings, such as:
- HMRC Time to Pay Arrangements: if you have HMRC arrears, these could be offered into a Time to Pay (TTP) arrangement directly with HMRC. With sufficient evidence (either presented by yourself or by a professional), HMRC may grant you an additional year to clear any outstanding tax owed.
- Company Voluntary Arrangement (CVA) or Administration: if you’re juggling a multitude of debts, a CVA allows you to make one monthly payment to a number of creditors, for a set number of years, giving you long-term certainty. It can only occur under a licensed insolvency practitioner’s supervision and becomes legally binding on all parties once the creditors have agreed to the terms (once you’ve proved you’re a viable trading entity).
Likely to Default on Your Bounce Back Loan?
While the PAYG scheme offers payment flexibility and restructuring or refinancing options could work if you’re still profitable, some companies will find that they can’t repay at all. So, what happens then? Can you be held personally liable?
To secure a Bounce Back Loan, companies didn’t have to provide a personal guarantee, as the government provided the banks with 100% security. This means that the bank will turn to the government for repayment, not the company director – but only if the company is declared insolvent (with rules to bear in mind, outlined below). If the company is still trading, and active on Companies House, the director remains responsible for the Loan repayments.
Have You Misused Your Bounce Back Loan?
When a company is insolvent, the directors must act in the creditors’ best interests. The main question to ask yourself is: have you acted “reasonably and responsibly” as a director? We advise that you don’t run down all the Bounce Back Loan’s funds, leaving you nothing to pay wages or liquidation costs, etc., otherwise you risk personal repercussions.
For example, if you’ve used the Bounce Back Loan to pay yourself over normal suppliers or creditors, this could be classed as a “Preference Payment”, which is against the law set out in the Insolvency Act 1986. This means that the liquidator (or a Court) could then make you personally liable for the repayments. Instead, make sure you’ve used the Loan to provide economic benefit to your business, e.g., to purchase equipment or stock, to adapt to the landscape changes, or to subsidise staff salaries.
The Government investigates all loan defaults, and if you took out a loan for which you weren’t eligible, or if you used the loan for the wrong purposes, there may be consequences, including a ban on serving as a company director.
If you’re experiencing financial difficulties, and you’re not sure whether you’ve misused your Bounce Back Loan, we recommend seeking expert help and advice now.
Can’t I Just Dissolve My Company?
Many directors ask if they can just dissolve their company, rather than go through a formal liquidation process – but the short answer is no. The Insolvency Service will be able to investigate (retrospectively) misused company dissolutions as set out in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act – with a sanction example being disqualification from acting as a company director for up to 15 years.
The only option (if you’re unable to make repayments at all) is to go through the insolvency process – which can happen in one of two ways. Either a creditor will enforce compulsory liquidation through a court order (which can be very lengthy), or you can liquidate the company yourself though a Creditors Voluntary Liquidation (CVL) – the latter being the quicker and safer way to close your company.
Voluntary Liquidation
As you commence a CVL, a licensed insolvency practitioner will be appointed to handle the liquidation process. This includes identification of company assets which can be sold for the creditors’ benefit, before distributing the proceeds.
Once the process is complete, your company will no longer exist as a legal entity, and the Bounce Back Loan (and any other outstanding debt) will be written off, unless previously secured with a personal guarantee. As Bounce Back Loans were introduced without personal guarantee security, you won’t be responsible for loan repayments (as long as they were used for the purpose of the business – see above).
Will the Government Write Off Bounce Back Loans?
As things stand, there is no government policy to write off Bounce Back Loans. Under the BBLS Scheme, all loans are liable to be recovered either by lenders, or by law enforcement in the case of fraudulent or criminal activity.
However, an increasing number of companies and individuals are unable to make their Bounce Back Loan repayments. As a result, the Federation of Small Businesses (FSB) has suggested an idea that small businesses be granted a time-limited amnesty – where Bounce Back Loans can be written off in exchange for all-employee equity stakes vested in EOTs (defined by the 2014 Finance Act). The lenders would write of the loans and claim their 100% guarantees from the government instead.
As the time of writing, this is pure speculation, and we don’t know what the future holds – so, it’s best to assume that Bounce Back Loan repayments are here to stay, at least for the foreseeable future. If you’re having difficulty making repayments, we suggest you follow the guidance given in this article and take professional advice.
Need Advice on Bounce Back Loan Repayments?
Struggling to make your company’s Bounce Back Loan repayments? Our expert team can offer advice on the emergency loan scheme, including PAYG, liquidation, and much more.
Many directors prefer to understand their options and get themselves ready before speaking to an Insolvency Practitioner.
Contact us today through our online form, call 01743 562430, or email hello@mercianaccountants.co.uk.
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