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What If I Don’t Pay Back Bounce Back Loan (BBL)

What if I Don’t Pay Back Bounce Back Loan? Written by John A Waller, Director. Updated June 21st,2022.

Before worrying about not paying your BBL, understand what one is and its conditions. 

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What happens if you don’t pay back your Bounce Back Loan?

Key Takeaways.

  • Bounce Back Loan (BBL) was a UK government loan scheme set up in May 2020.
  • A BBL is not a GRANT.
  • Borrowers remain not liable for a BBL in Liquidation unless they fraudulently claim the loan.
  • Directors who fraudulently borrowed money face investigation by the Insolvency Service.
  • You can liquidate a company with an unpaid BBL.

Can I ignore bounce back loans?

It would be best if you went back to the lender as soon as possible – avoiding the situation worsens matters. They may give you additional time – much depends on how much you owe and your company’s viability.

The Bounce Back Loan Scheme (BBLS).

The Coronavirus COVID-19 pandemic has caused difficulties for small to medium-sized businesses (SMEs) that depend on their daily operation to survive. Almost everyone stayed indoors throughout the UK. Many companies have fallen into financial difficulties at the height of the pandemic.

The UK government introduced a loan program for SMEs in May 2020 through the British Business Bank.

Lenders had no risk of loaning out money, and borrowers face no immediate penalty or consequence if they fail to repay it.

The Bounce Back Loan (BBL) Scheme is a 100% UK Government-backed loan. The lender will not ask you to hold your assets as collateral or guarantee. As the UK government fully backs the loan. You can already avail of it once you meet the minimum requirements. The UK government becomes the guarantor and therefore remains liable to the lender if they default on the loan.

The BBL scheme lent up to £50,000 to each company if required. HOWEVER, the UK Government covers the loan’s 2.5 per cent interest rate for the first year, meaning lenders already guarantee the first-year interest payment for each borrower.

UK banks will pursue defaulted BBLs like they would try to recoup:

  • other unsecured loans;
  • dealing with debt collection agencies;
  • court action; 
  • appointment of bailiffs.

What is the term of a Bounce Back Loan?

BBLs last six years, though you can repay early without an early repayment charge. Borrowers pay no repayments in the first 12 months and before making your first payment. However, you can extend the term of your loan to 10 years.

The rollout of Bounce Back Loans

“Government prioritised getting Bounce Back Loans to small businesses quickly, but failed to implement adequate fraud prevention measures. One impact of these decisions is apparent in the high levels of estimated fraud. The true level of fraud will become clearer over time. Still, it is clear that Government needs to improve its identification, quantification and recovery of fraudulent loans within the scheme.”

Gareth Davies, the head of the National Audit Office.

Liquidation and Bounce Back Loans
Liquidation and Bounce Back Loans
Liquidation and Bounce Back Loans
Liquidation and Bounce Back Loans
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Closing an Insolvent Limited Company With a Bounce Back Loan.

"I'm worried about what will happen if I don't pay back BBL? "What should I do if I know my company can't pay it back?"

BBL lenders do not take the risk of loaning money, and borrowers do not face immediate penalties or consequences if they do not repay it. The bounce-back loan scheme is a government-backed loan (100%). The lender will therefore not ask for: -

  • Your assets as collateral or 
  • a personal guarantee.

IMPORTANT: The UK Government guarantees repayment of Bounce Back Loans. If the loan defaults due to insolvency, company directors can only reimburse the outstanding amount if there is a fraudulent claim.

Why was the Bounce Back Loan Introduced?

Rishi Sunak introduced the Bounce Back Loan scheme to help UK businesses recover from the current COVID-19 coronavirus pandemic in May 2020.

A BBL allowed companies to borrow a fast-track loan from £2,000 to £50,000. Directors could then use the loan to pay staff salaries, including directors.

However, the loan can help with:-

  • rent;
  • business rates;
  • monthly business costs;
  • overhead costs, such as phone and electricity bills;
  • Directors could use it to refinance other corporate debts to reduce interest costs.

More than a million approved Bounce Back Loans for small businesses in the UK. However, many cannot repay the loan as the pandemic extends.

However, many remain worried that you will not repay your coronavirus loan. What should we do if we already know that our company cannot repay it?

What If I Don't Pay Back Bounce Back Loan and how HBG Advisory can help

HBG Advisory advises you why you do not have to use all BBLs if you can't repay your creditors as soon as they are due. Therefore, it may expose you to trading while insolvent.

How much could a business borrow under the Bounce Back Loan scheme?

Certified annual turnover for original loan Total amount available under BBLS (25% of turnover) Original Bounce Back Loan amount Bounce Back Loan top-up*

 Example:

1. 200000 50000 50000 0,

2. 200000 £10,00 10000 40000,

3. 150000 30000 30000 7500,

4. 100000 20000 20000 5000,

5. 50000 10000 10000 2500,

6. 20000 4000 4000 1000.

Source: British Business Bank

What if I Don't Pay Back Bounce Back Loans - Is a Bounce Back Loan a Secured or Unsecured Debt?

A BBL is an unsecured debt. If the company has to liquidate, the lack of personal guarantees associated with the loan means it is considered unsecured debt. Usually, however, unsecured debts are rarely paid in full after a company liquidates.

Can't Pay Back Your Bounce Back Loan. Can I reduce the monthly payment?

Monthly repayments from the borrower repay the lender directly to the loans. Therefore, BBLs differ because lenders applied a 12-month payment holiday to the loan. However, as soon as it ended, the borrowing company was responsible for ensuring the borrower repaid the loan as agreed.

The situation with the COVID-19 coronavirus was still unstable. Economic forecasts could not predict what lockdown measures and restrictions would be needed and for how long. Many directors applied for the BBL in good faith and despair to keep their businesses afloat. However, many now have difficulty repaying the loan because trade has not returned to pre-pandemic levels.

So to help these companies, the UK government launched a new Pay As You Grow (PAYG) scheme, which aims to help companies repay their BBLs over a more extended period.

Let's say your company can't repay its BBL. Once appointed, the liquidator reviews the declarations made a

Declarations made when applying for a Bounce Back Loan

t the application stage for any signs of:-

  • fraudulent claims;
  • misfeasance or 
  • wrongful trading.

When they applied, business owners declared:-

  • COVID-19 remained the cause of the negative impact on their business;
  • Before 2020, the company was financially stable. 

However, the director may personally be liable for the outstanding loan if any information is declared false.

What If I Don't Pay Back Bounce Back Loan? How do I get rid of a Bounce Back Loan?

Directors who entered into a BBL are obliged to repay the loans unless:-

  • The company enters into insolvency.

However, you may not commence the dissolution of the company with an outstanding Bounce Back loan.

Will the Chancellor convert the loans to a grant?

BBLs are debt, not grants. Therefore, they have terms and conditions from the lender. Check them carefully. You must be aware of the terms applied.

Did I use my Bounce Back Loan correctly?

The Bounce Back Loans (BBL) scheme helped businesses with working costs and compensated for the shortage of turnover due to the coronavirus COVID-19 pandemic.

Businesses can use them to:

  • To pay:
    • staff;
    • loans;
    • trade suppliers;
    • operating costs of business.
  • Investing in new production equipment and machinery;
  • Supporting cash flow of the company;
  • Support of directors' incomes;
  • Marketing.

However, incorrect use of Bounce Back Loans includes:

  • Paying dividends when reporting no profit to justify; sheet.
  • Employee wages increase.
  • Buying Cars, Boats & Holidays.

What happens if you don't repay a Bounce Back Loan (BBL)?

  • Suppose your business can't repay the BBL. In that case, your company is potentially insolvent due to its inability to pay its debts as and when they fall due.
  • Insolvency of a limited company exposes company directors to risk.
  • Insolvency in the UK means that a director's primary obligations lie with creditors, not shareholders. 
  • Therefore, you cannot pay anyone (employees, yourself, creditors, etc.) without the risk of showing preference. Conducting any preference payment can contribute to wrongful trading, a civil offence that can personally make directors liable. 
  • So, directors must be aware of the repayment of a personal loan with a BBL, also considered a preference.

What happens if you default on your Bounce Back Loan?

We strongly advise directors not to run down the Bounce Back Loan balance, therefore not enabling further payments to creditors, staff and companies' liquidation fees.

No significant repercussions exist if you default to repay your BBL. You won't lose any assets and will not directly affect your credit score. In the first place, credit checks are not mandatory for application to the loan scheme.

However, banks may consider defaults on a bounce-back loan in the future when applying for a loan. 

The UK government also instructs bank lenders to recover loan payments following standard procedure. They also affirm that they made clear that these loans are repayable, not grants. Furthermore, bank lenders are still the ones to make the final decision regarding the approval of the loan.

Participating banks will chase for unrepaid BBLs in much the same way as they seek to recover any other unsecured loan involving:

  • Debt collectors; 
  • Court action, and 
  • Bailiffs.

However, the UK Government and the banks that made BBLs could consider forming a panel of debt collection agencies. They would all follow an agreed code of conduct, as lenders only claim the 100% guarantee from the UK Government once a debt collection agency has exhausted the repayment process.

Please read what happens if you can't pay back your Bounce Back Loan?

What solutions are available?

Five options if you are unable to repay your Bounce Back Loan:

Requesting a payment holiday

In September 2020, the Chancellor, Rishi Sunak, announced new measures to help companies struggling with the extended pandemic. 

Pay As You Grow: Created to support those who borrowed money from the BBL scheme.

The new measures allowed borrowers to extend the repayment term to 10 years while requesting six months breaks, with the option to do so up to three times. And once you have made six payments, you can also request a six-month repayment holiday. 

So businesses can use these options together or individually. 

However, remember that you will pay more interest if you switch to interest payments or take a payment holiday.

Time to Pay (TTP)

Another alternative when you have difficulty repaying your loan is to request a time-to-pay arrangement from HMRC. A TTP allows your company to repay outstanding corporate tax, PAYE/NI or VAT liabilities in instalments over an agreed period of up to 12 months.

However, this could relieve pressure, which could help you repay your loan on time. Therefore, it's essential to remember that HMRC must be confident that your company can make the total repayments before accepting a proposal. However, your proposal will need to be supported by evidence that your business is viable and can pay off the debts in the proposed time.

Company Voluntary Arrangement

company voluntary arrangement (CVA) enables an insolvent company to repay its debts in affordable monthly amounts. A structured repayment plan allows your business to renegotiate debt and continue trading.

Once creditors agree, the CVA will stop all interest and charges, and creditors cannot take further recovery action against your business for the debt. The CVA protects your business so that it can resolve its financial issues.

Once agreed, you will pay for your business debts for an agreed period. Once that period completes, the insolvency practitioner will write off your remaining debts.

Pre-pack administration

If your company has difficulty paying off its debts, however, viable if restartedpre-pack administration could be an option.

A formal insolvency procedure, such as a pre-pack administration, allows a viable, struggling business to restructure. The process enables your business to be packaged and sold to a new company, often operated by the previous directors.

A Licensed Insolvency Practitioner is appointed liquidator to wind up your limited company. The former directors often set up a new limited company to buy the assets and business from the original business.

Once sold, you can restart an insolvent company without your debts and effectively maintain it in a new but unchanged form. Furthermore, your business can also continue trading during this process.

Liquidation

Finally, if the worst-case scenario is inevitable, and your business requires closing. Then a Creditors' Voluntary Liquidation CVL is the answer.

So, instead of waiting for your creditors to take action against you, such as:-

  • issuing a CCJ;
  • a liquidation petition or 
  • hiring a debt collector, 

a CVL allows you to control the legal closure of the company.

So ceasing to trade and having the company's debt dealt with legally, a liquidation deal with all loose business ends, leaving directors to make a fresh start with a new business. 

However, other debt-relief options remain available if you fall behind on your repayments.

If you are struggling with coronavirus-induced debt or worried about repayments, speak to the HBG Advisory team before the situation becomes uncontrollable. Our team will evaluate your company's financial position and provide a clear way forward.

What If I Don't Pay Back Bounce Back Loan? Can I simply dissolve the company?

No!

To do so will prompt the attention of the Insolvency Service. They may consider investigating you as directors of a limited company dissolved, covered by the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill. This new bill is making its way through parliament, which, if passed, will expose former company directors to disqualification, even after the company in question has shut down. So take advice from a licensed insolvency practitioner.

Extension of the power to investigate includes relevant sanctions, such as disqualification from acting as a company director for up to 15 years. The Insolvency Service will exercise these powers on behalf of the Business Secretary.

The measures contained in the Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act are retrospective. They enable the Insolvency Service to combat directors who have wrongly wound up companies that have benefited from a bounce-back loan.

The only way to draw a line under the issue is to go through an insolvency process. The bank will only get the money back from the Government if the company liquidates.

The bank will either:

  • wind up the company through the court, or 
  • You can initiate the process yourself by using a creditor's voluntary liquidation. A CVL remains the fastest and safest way to close the company.

False Bounce Back Loan declarations.

Suppose businesses cannot pay back their bounce back loans. In that case, an insolvency practitioner will review your declarations at the application stage and carefully consider your actions.

As part of the application process, directors had to confirm that COVID-19 was impacting their business viability and that the company was "financially viable" before the onset of the COVID-19 pandemic. Any false declaration exposes company directors to personal liability for the loan if the company liquidates.

Let's say companies can't repay the loan. It's in financial difficulties. Then when you applied for a BBL, you were asked to declare various questions. The loan was subject to your agreement. Therefore, once a limited company enters liquidation, a licensed insolvency practitioner is required to examine your declaration for fraudulent claims.

However, there are two situations where personal liability issues may arise.

The scheme was open to most businesses who met the eligibility criteria regardless of turnover and was established on or before March 1st, 2020. Borrowers had to declare, among other things, that:

(Extracts from the British Business Bank website)

    • The company traded in the UK at the time of application, operating on March 1st 2020, and was adversely affected by a coronavirus (COVID-19).
    • "Whether the business was, on December 31st 2019, a "business in difficulty" does not breach State aid restrictions under the Temporary Framework. "If it was a "business in difficulty". It must confirm that it does not breach de minimis state aid restrictions and cannot be used to support export-related activities".
    • "When submitting their loan application, the business was neither in bankruptcy, liquidation or similar".
    • "They will use the loan only to provide economic benefit to the business, not for personal purposes. They have understood the costs associated with the repayment of the loan. They can and intend to complete repayments in the future".

Paying creditors in preference to others

Under the BBL scheme terms, the loan is to refinance existing corporate debt. 

However, imagine the company is or becomes insolvent. Then, company directors are legally obliged to act in the best interests of the creditors. However, should repayments be made to certain creditors, not others, as a company director? Then you risk personal liability for the company's debts, as directors must not decide on preferential payments.

A preferential payment could be a loan repaid to a connected party of the company, such as:-

  • a board member;
  • relative or 
  • Friend.

While other unsecured creditors, such as HMRC, go unpaid. However, it could also be the transfer of an asset in part or total liability settlement.

Directors using loans other than for the benefit of the company (Borrower)

Few rules direct the use of BBLs. Borrowers should meet the general goal of benefiting the business. The directors can determine what use for the company they consider under the terms lent. They may use the loan to:

  • pay company bills; 
  • purchase supplies;
  • Pay employee wages. 

However, rumours abound that some directors are taking advantage of the scheme by using the funds to purchase personal assets, invest in property and pay off personal loans. 

Suppose the company fails and enters a formal insolvency procedure, such as administration or liquidation. In that case, the directors must appoint an insolvency practitioner. As part of their role as administrators or liquidators, they investigate the causes of the company's insolvency, including the BBL. If they find the loan has not been per the terms, you may fall foul of the Insolvency Act 1986, specifically misfeasance. So then, the company directors could personally be liable for the loan repayment. That could put personal assets such as savings, vehicles and property at risk. 

"Once a business commences a formal insolvency procedure, the appointed insolvency practitioner must examine the transaction authorised by the directors up to their appointment".

Therefore, if the directors used the BBL to make preferential payments to creditors, not others, they may be personally responsible for the value of the amount paid. 

What happens with the Insolvency Service Investigation?

The Insolvency Service will examine the transaction to decide if disqualifications apply, potentially stopping you from acting as a company director in the UK for up to 15 years. You may even face a financial penalty.

HMRC Bounce Back Loan Investigation

Fraudulently claiming a BBL by:

  • Overstating Turnover;
  • Never traded;
  • Misuse of the loan for personal use.

Will trigger an investigation involving an investigation by:

  • Her Majesty's Revenue and Customs.
  • The Insolvency Service.

Insolvent companies now under the control of a Licensed Insolvency Practitioner face scrutiny upon their appointment.

Directors should also note whether does HMRC investigates all tip-offs?

What is a 'business in difficulty'?

A company was in trouble when it fell into one of the following tests on December 31st 2019:

  • Individuals or companies exposed to "collective insolvency proceedings";
  • Limited companies that have lost more than half of their share capital in their last financial year do not apply to SMEs less than three years old.
  • Apart from limited companies, they have accumulated more than half of their capital in their last annual accounts. However, this does not apply to SMEs less than three years old;
  • If your business has received any form of rescue and has:
    • Has undergone a restructuring process;
    • Has a loan associated with a rescue strategy still outstanding;
    • Concluded the guarantee.
  • A company in the last two accounting years:
    • Possess a debt to equity ratio higher than 7.5;
    • Your business 'EBITDA 'interest coverage ratio has fallen below 1.0.

Can I liquidate with an unpaid bounce-back loan?

Yes!

For further in-depth reading, please view. Can I liquidate with an unpaid bounce-back loan?

Can't pay back your Bounce Back Loan due to an extended pandemic?

The BBL came with the conditions attached. Nevertheless, since taking the loan, the COVID-19 coronavirus pandemic has extended further than initially expected. Therefore, the original conditions of the loan may not be achievable. Directors, though, may not abuse the loan and use it for reasons other than what The British Bank lent. If this is the case? Then company directors must seek advice.

Those who fail to take advice promptly may therefore face trouble. It is not a defence to not know what to do in law. So try to picture direction as an insurance policy.

Knowing your company can't pay your bounce back loans.

'Please avoid trading while insolvent and use the bounce-back loan, knowing that you will not pay your business creditors, wages, or liquidation costs.

The press has suggested that many applications for a bounce-back loan could be illegal. Hopefully, this is not the case, as the economy will take many years to recover from the present Coronavirus COVID-19 pandemic.

However, directors mustn't hold back seeking advice if they cannot pay creditors. Doing so protects creditors' interests and themselves from wrongful trading. The pandemic has gone longer than expected and has impacted many businesses. Hanging on is dangerous and may affect your relationship with your company bankers if you miss a payment.

Can't Pay Back Your Bounce Back Loan and Missing Repayments?

Failure to fulfil payment terms on the agreed date triggers lenders to take the following measures, which will have severe consequences for you. The lender may:

  • Cancel all or part of the loan and their obligations;
  • Demand immediate repayment of all or part of the loan.

Lenders must inform the borrower in advance of their intentions and allow the opportunity to correct the problem (if you can fix it and your business is feasible). Failure to do so means the lender will commence the above steps.

Failure to meet the agreed repayments worsens your position. The lender reports late payments to credit companies, including Experian and Equifax, which affects any prospects of borrowing money, leases or lending applications with suppliers.

Being a Sole Trader and can't pay back your Bounce Back Loan?

Sole traders are unlike limited companies. Under normal trading circumstances, directors' finances and liabilities remain separate from a Limited Company. A director can only be held responsible for all or part of their company's debts on occasions of fraud, wrongful trading, misfeasance, or personal guarantees.

However, a sole trader is the sole legal entity. It has no limited liability, so if unable to repay the loan. The trade must either go bankrupt or arrange an individual voluntary arrangement supervised by an insolvency practitioner to repay the bounce loan or percentage over an agreed period. An IVA remains a legally binding agreement between the individual and their creditors.

Checking if your Limited Company is insolvent

Two simple tests determine if your limited company is insolvent:-

  • Cashflow insolvency – is when a limited company cannot pay its debts as and when they fall due. Usually, when creditors send a demand for payment, they can't pay.
  • Balance Insolvency – when a limited company has liabilities, especially those payable within 12 months, more significant than its assets.

Are Bounce Back Loans required to be repaid?

Yes, 

When you applied for the BBL, you agreed to repay the loan as a condition of the agreement.

However, it remains unclear how banks chase loans unpaid.

The UK government sanctions request that UK banks adopt traditional methods to collect BBLs. However, the task size is yet quantified, as over 1.6 million loans were approved, lending over £47.36bn (Source HM Gov) to UK businesses. 

Bounce back loan usage for a company?

You may not use bounce-back loans to pay:

  • Borrowers cannot use it for any purpose except other than business-related purposes;
  • To pay into a personal savings account to accrue interest;
  • Shareholders Dividends.

Misusing the bounce-back loan is considered not to act as a company director reasonably and responsibly. A point that will bite directors back if the company enters an insolvency process.

However, directors may use the loan to pay:

  • Director's Salaries;
  • Company staff salaries & wages; 
  • Company directors may pay more expensive company debts, saving money on reduced interest charges;
  • Monthly operational costs of the business;
  • Business rates; 
  • Business Property Rent; 
  • Overheads: 
    • Phone; 
    • Electricity & Gas bills.

The meaning of acting "reasonably and responsibly" as a Company Director?

Suppose you used the bounce-back loan to:

  • repay any loans you made to the company or 
  • pay dividends or 
  • drawings when the company cannot pay regular suppliers or creditors. 

Payments of this type are a preference. Doing so is illegal. Therefore, company directors must be aware of their director's duties and responsibilities.

Paying creditors ahead of other company creditors.

The BBL scheme terms specify that borrowers may use the loan for existing company debt and refinancing. Note though; care is required when doing so. 

Should your business be insolvent in the future? As a responsible officer of a company, you are then obliged to protect the interests of the company's creditors. 

Let's assume that repayments are paid to certain creditors, not others. As a company director, you risk paying preferential payments, which could lead to you being liable for the company's debts and struck off as a director.

A preferential payment to a creditor of the company may be:

  • Repaying a loan to a connected party of the company, 
    • Like a member of the company's board 
    • Friend or 
    • Family relative. 
  • Simultaneously, other unsecured creditors, like HMRC, remain unpaid. 

Preferential payment may also be giving an asset of the company as a payment for a debt.

Limited companies that commence insolvency proceedings remain subject to the censure of their former payment transactions, leading to the appointment of the insolvency practitioner. Let's assume the IP proves any wrongdoing with either the BBL application or the way borrowers used the money. Then borrowers can lose personal liability protection and face the risk of repaying the loan personally. 

The Insolvency Service examines transactions to decide whether you should face a director's disqualification order for 17 years if proven guilty.

Bounce back loan declaration

Suppose businesses are unable to pay back their BBLs. The declarations made at the application stage remain reviewed by the appointed insolvency practitioner, and your actions assessed.

Upon applying, business owners legally declared COVID-19 was the cause of their business's negative impact. Before 2020, the company was not facing insolvency or legal issues for unpaid debt. A false declaration by the company exposes directors to personal liability.

Money laundering and Back Bounce loans

When you originally applied for a bounce-back loan. The bank has a legal duty to carry out confidential reporting if they suspect money laundering or other fraudulent activity to the National Crime Agency.

In addition, other professionals, such as:-

  • lawyers;
  • finance houses;
  • car dealers and 
  • Accountant.

Remain legally obliged to report fraud or money laundering if suspected without advising you. 

Options remain available if your company cannot pay the Bounce Bank Loan back?

If it is your BBL loan you are struggling to repay, then help may be possible. 

The Chancellor extended the loan's versatility, available to all businesses from their first repayment. Therefore, companies can defer payments on their loan for 18 months.

The banks rolled out BBLs in May 2020, requiring repayments in May 2021.

However, should a business enter a cash flow crisis, you should consider your company's options. Commence communicating with HMRC to consider a time to pay arrangement sooner than later. 

Meet with an Insolvency Practitioner and consider the insolvency restructuring process. 

Options include:

However, protect creditors' interests from further harm if your company is no longer viable. Then a liquidation through a Creditor's Voluntary liquidation may be perfect. For further reading on creditors' voluntary liquidation, please read:

Pay As You Grow, your Bounce Back Loan

'Pay as You Grow' is now available to over 1.4 million UK businesses.

The UK Chancellor has made sure support will continue to help businesses and allow a further six months before repayment begins;

BBL borrowers now can tailor payments suited to their circumstances.

This option is available to all businesses commencing their first repayment (instead) after six repayments.

Pay as You Grow borrowers to extend their loans from six to ten years. They can adapt their repayment plan to their circumstances by reducing monthly repayments by almost half and paying interest payments for six months.

The UK government has also agreed to cover the interest costs of the BBL in the first twelve months.

Pay as You Grow borrowers tailor repayments to their financial circumstances.

They are allowed additional time and flexibility to pay back the loan.

Lenders therefore contact borrowers to provide information on repayment schedules and how to access flexible repayment options.

Rishi Sunak acknowledges that UK businesses continue to experience the pandemic impact, and the Government remains determined to support them through the ongoing pandemic.

Pay-as-you-go affords UK businesses with:

  • Stop repayments for up to six months;
  • Pay interest payments for up to six months, which allows the option to do so three times over the extended loan period;
  • Extending the period to ten years rather than six.

Will the use of Pay As You Grow affect future financing opportunities?

Using Pay As You Grow will not, in principle, affect a business's ability to obtain finance in the future. The creation of Pay As You Grow eases borrowers' financial difficulties, even before it arises, by providing flexibility in meeting their repayment obligations. 

Pay As You Grow will not affect a borrower's credit rating. However, it could affect future creditworthiness assessments by lenders, including the total debt exposure of a business, including the outstanding BBL scheme facility.

How do I stop my business from going out of business?

Since 2020 and the impact of the Coronavirus COVID-19 pandemic, many UK business owners have asked how I stop their business from going bust. Businesses operated as a Limited Company. You are protected as directors, as your finances are separate legal entities. As a sole trader, you are the same. Matters are further complicated if a partnership, as you have no limited liability unless a Limited Liability Partnership LLP.

Furthermore, as a partnership, you are jointly and severally liable. We are into 2021, over a year since the pandemic started. Three lockdowns have caused businesses to face failure. However, help is available, supporting business owners.

Common mistakes causing business failure:

  • Not understanding the working capital requirement of your business from the start;
  • Insufficient management of your business cashflow;
  • Failure to prepare financial data to manage the business, allowing you to steer your business through challenging and changing times;
  • You are not focusing on your business's core activity, therefore spreading resources and cash too thin;
  • Having a limited client base who may control your business or even be its downfall if they fail;
  • Failure to agree on a business plan, which you may flex as the business grows;
  • Market no longer exists (EG, Video Hire).

So what steps are needed to secure my business?

Remember when you first started your business? The vision you had then is perhaps the critical factor in saving your business if it can be viable in the future and its market still exists? So:

  • Start back at the business basics. Be honest and analyse the problem. Perhaps it is not you, but the service sector you offer, or even the product type or brand?
  • Then analyse your operational costs and sit down with your accountant to verify them and how you may trim them without affecting your business detrimentally. One cost you may wish to review is the cost of financing your business, including overdraft fees, loan costs and leasing?
  • Once you have carried out the above, revisit your accountant. Rather than use their service for historic, ask them to work with you and provide live data on your business' performance. 
  • If the situation is critical and you cannot repay your bounce-back loan and other creditors, like HMRC? Then seek advice from a licensed Insolvency Practitioner immediately. Do not delay, for if you are a director of a limited company, you have directors duties & responsibilities to consider. If not, delays may impact you as a sole trader or partner. 

Economic support by the UK Government during the COVID-19 pandemic.

Since the Coronavirus pandemic, the UK government has directly supported the UK economy, with £285 billion rising. The ongoing pandemic has affected many businesses, and the economic downturn has severely affected directors and their companies.

However, companies must not trade in an insolvent state, knowingly creating further debt to the detriment of the company's creditors.

Many fear the outcome of the liquidation of their company with a BBL. Therefore, seek advice early, as the Government has guaranteed the bounce-back loan, and borrowers may only be liable if their initial claim was fraudulent.

Can't pay back Bounce Back Loan – UK Business Angels Association?

The UK Business Angels Association (UKBAA) is the national trade association for angel and early-stage investment in viable companies.

Fraudulent claims for Bounce Back Loans?

Slowly, HMRC is alerted to fraudulent claims relating to BBLs. Companies are estimated to have claimed more than £30 billion incorrectly. As a result, banks are freezing accounts they believe are fraudulent.

Arrests in a £6 m bounce-back loan scam have occurred since the new year, as the National Crime Agency reported.

Any company director concerned about legal liability if they need to close their business but have an outstanding BBL should contact HBG Advisory. Usually, nine times out of ten, there is nothing to worry about

How is the UK Government recovering money lost back?

HM Treasury has set up the £100m Taxpayer Protection Taskforce of 1,200 HMRC staff to combat fraud. Further, they opened 13,000 one-on-one fraud and error inquiries in 20/21. HMRC wrote to 75,000 people, stopping or recovering £743m of overclaimed grants in 20/21.

The task force expects to recover up to £1.5bn from fraudulent or incorrect payments.

On BBLs, the UK government actively works with:-

  • the British Business Bank;
  • lenders, and 
  • Enforcement authorities to recover fraudulent loans. 

The Cabinet Office Counter Fraud Function has supported this work to identify the level and types of fraud against the scheme, helping lenders tackle fraud effectively.

HM Treasury is working with enforcement bodies, including the National Investigation Service (NATIS), to investigate the most serious fraud cases.

So far, NATIS has made 49 arrests concerning bounce-back loan scheme fraud. In contrast, work by the National Crime Agency has led to 17 arrests in stand-alone investigations or as support to NATIS. Enforcement agencies continue to pursue serious fraud. HM Treasury has invested over £6 million in NATIS to tackle fraud in the Covid loan schemes.

Regarding BBLs, the Insolvency Service has achieved 106 director disqualifications and 48 bankruptcy restrictions, and 13 companies wound up in the public interest.

Will the UK Chancellor write of Bounce Back Loans?

Lenders lent the BBL backed by the UK Government to companies requiring support, not individuals, at the start of the pandemic. However, its uses were considered more personal loans than for the business. So should the limited company fail financially and enter a formal insolvency process, the lender will write off the loan, and the company will cease to exist. 

However, suppose you have used the loan to pay off personal debt or, as already advised, made preference payments to your friends. In that case, the appointed liquidator may reverse such payments by pursuing you personally. The liquidator remains authorised to investigate transactions paid. If they are found illegal, then:-

  • Removal of the veil of incorporation;
  • Personally liable for debts of the company; 
  • You face disqualification as a director for up to 15 years. 

Might the UK Government write off the loans? 

Possibly, however, the press states that up to 40% of UK companies remain unable to repay the loan. 

Bounce Back loan affecting personal finances

If you require a way to resolve personal debt, consider either a:-

  • Debt management plans:
  • an IVA or 
  • bankruptcy.

As a company director, I am concerned about not repaying the BBL? What steps should we consider knowing this now?

DO NOT, however, commence running down the BBL to nothing; this means no cash will be left in the company to pay:

  • creditors;
  • Staff wages or 
  • cost of liquidation. 

This risks personal consequences.

How to Avoid Personal Liability for Bounce Back Loans?

The BBL scheme is intended to help small businesses financially impacted by the Coronavirus COVID-19 pandemic and unable to pay their company's debts. However, even with this additional funding, companies still fail, and company directors could be concerned about the possible consequences of the loan.

Notably, a BBL will not prevent you from liquidating your company as usual. As long as borrowers correctly used the loan? The liquidator will repay the company's debts by selling assets and writing off all remaining debts. 

The insolvency practitioner will investigate in their duty checking events before their appointment. However, as long as you have fulfilled your director's duties and the bounce-back loan is not misused, you should not have any issues.

So please get in touch with HBG Advisory on the details below to set aside your concerns over BBL repayment and receive Bounce Back Loan support today.

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