Bounce Back Loans Issues

Bounce Back Loan Issues. Written by John A Waller, Director. June 20th, 2024.

The worldwide coronavirus pandemic rapidly impacted the UK economy, causing unprecedented business interruptions across the Country. The UK government announced measures to help companies maintain trading despite the effects of the coronavirus COVID-19 pandemic.

In March 2020, Rishi Sunak, in conjunction with the British Bank, introduced the UK government-backed Bounce Back Loan scheme, which allowed eligible UK businesses to borrow up to £50,000 (Based on Turnover) without a personal guarantee. The borrower made no repayments for the first 12 months.

As the first anniversary of the Bounce Back Loan (BBL) has passed, borrowers now find that their business’s cash flow and viability are under threat, attempting to repay their BBL, causing insolvency issues.

Borrowers are confused about their next step when they cannot afford to repay the BBL. So contact HBG Advisory, and we will advise you of the consequences and your next move.

Will Bounce Back Loans Be Written Off?

No.

A company cannot write off a Bounce Back Loan

Negotiating with the lender to repay a Bounce Back Loan over a longer period and take a payment holiday may be possible. However, no lender will write, the loan off. The only way to write off a Bounce Back Loan is to enter Liquidation voluntarily.

I can’t afford the monthly Bounce Back loan repayment amount. Can I reduce it?

As with most loans, Bounce Back Loans are designed to be repaid through monthly payments directly to the lender. Bounce Back Loans varied as a 12-month payment holiday applied to the loan. Yet, once this ended, the borrower was responsible for ensuring that the borrower repays the loan per the loan agreement.

The problem is that the future situation was unclear when companies first took out these bounce back loans. The extended lockdown measures and local restrictions caught many businesses out. Therefore, borrowers may have taken out loans in good faith. However, companies still suffer from trade not returning to the pre-pandemic level. This means repaying the borrowing as planned is impossible.

To help these companies, the government launched the Pay As You Grow (PAYG) scheme to help UK businesses repay their Bounce Back Loan.

What will happen if I cannot pay my Bounce Back Loan?

The main advantage of the BBL was that the government provided 100% security for the money they lent. Therefore, no personal guarantee by the borrower was required to secure the loan. Instead, if the company cannot repay the money owed on the BBL, the bank will turn to the government to repay it, not the company’s director himself.

So, to have your company bounce back, a loan must be written off, and the limited company must be liquidated. Liquidation can either be voluntary, through a creditors’ voluntary liquidation, or involuntary, through a winding up order and compulsory liquidation.

The team at HBG Advisory will advise on the best options available at the initial free consultation.

How can the Pay As You Grow (PAYG) Bounce Back Loan scheme help?

On 24 September 2020, the Pay As You Grow (PAYG) scheme was introduced to enable a limited company with a Bounce Back Loan to reduce the monthly financial strain on cash flow. Here is how the PAYG scheme helps through: –

  • Delaying your repayments for six months over and above the initial twelve months. 
  • Requesting an increase in the term of the Bounce Back Loan from six years to ten years. 
  • Requesting interest-only payments for six months. 

What is Deemed Misuse of Bounce Back Loans

The Bounce Back Loan Scheme, launched in March 2020, helped struggling UK businesses. The scheme provides as many businesses as possible with much-needed financial support. As each company faced unprecedented challenges, the terms of use stated that borrowers must use the loan to benefit the company economically. The main requirement was that borrowers solely use the bounceback loan within their company. However, it was not meant for personal use.

The scheme enabled the borrower to support working capital, purchase additional machinery, equipment, or stock, or even support changes in how the company meets the new demands brought on by the COVID-19 pandemic. The main requirement was that borrowers solely use the Bounce-Back Loan within their company. However, it was not meant for personal use.

Therefore, those guilty of Bounce Back Loan Fraud could be personally liable for repaying the loans if the company cannot.

Bounce Back Loans Issues and how HBG Advisory may help.

So, if your company faces financial problems and you are concerned about whether you misused your Bounce Back Loan, seek help and advice. HBG Advisory has a team of experienced licensed insolvency practitioners who will assess the current financial position of your company and help you comprehend your options.

They can also discuss the potential personal consequences of liquidating your limited company if you feel you have misused your bounce-back loan, which remains unpaid. Many directors remain worried about bounce-back loan fraud, even though this is often untrue.

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Bounce Back Loan advice for Company Directors

Directors should seek professional advice if they have Bounce Back Loan worries regarding repayments. The UK government introduced the COVID-19 support scheme to support businesses through the pandemic. owever, repaying the loans has been difficult. So ensure you seek advice sooner than later.
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