What is the Bounce Back Loan Scheme (BBLS)? Problems repaying a Bounce Back Loan? Do you have Bounce Back Loan debt?
The Bounce Back Loan Scheme (BBLS) was introduced to support businesses in financial distress due to the Covid-19 pandemic. It allowed businesses to borrow up to £50,000, with over two million businesses benefitting from this financial aid. In total, £48 billion was distributed in Bounce Back Loans (BBLs).
The loans were attractive to businesses because the first 12 months were payment-free, and the interest rates were low, with the government providing a guarantee for the loans, protecting the directors from personal liability.
However, many businesses have since found themselves struggling to repay these loans, which has raised significant concerns. As Tom Fox, Head of Umbrella.UK Insolvency, highlights:
“The Bounce Back Loan Scheme was a lifelin for many businesses during the pandemic. But now, as the reality of repayment hits home, we’re seeing an increasing number of companies struggling to manage this debt alongside their other obligations.”
The loans were designed to provide short-term relief, but for some businesses, long-term challenges have emerged.
Appropriate Uses of Bounce Back Loans
One key aspect of Bounce Back Loans is that they were only intended to provide financial support for business-related expenses. These loans were strictly prohibited from being used for personal purposes, and any breach of this condition could lead to significant legal consequences. Businesses could use the funds to pay for essential costs like rent, business rates, monthly expenses, or overheads such as utility bills and telephone services.
According to Tom Fox, Head of Insolvency: “Directors needed to ensure that Bounce Back Loans were used for the benefit of the business. Any misuse of funds, such as for personal expenses, could expose directors to personal liability, especially in the event of insolvency.” This emphasis on responsible use is crucial as companies facing financial difficulties could face further scrutiny if they are placed into liquidation.
Problems Repaying a Bounce Back Loan
For businesses facing difficulties repaying their Bounce Back Loans, the government introduced the Pay As You Grow (PAYG) scheme. This initiative offers several options to help businesses manage their repayments. For example, businesses can take a six-month payment holiday, during which no repayments are required. However, it’s important to note that interest will continue to accrue, increasing the overall amount owed.
Another option is to extend the repayment term from six to ten years, which reduces the monthly repayment amount but results in more interest being paid over the loan’s lifespan. While these measures provide relief for struggling businesses, they may not be sufficient for companies with severe financial issues.
Tom Fox further explains: “The Pay As You Grow scheme can be helpful for businesses that just need more time. However, for companies that are fundamentally insolvent, delaying repayments won’t address the underlying issues. That’s where insolvency advice becomes critical.”
Insolvency and Bounce Back Loans
If a company cannot meet its financial obligations, including its Bounce Back Loan repayments, it may be deemed insolvent. Insolvency occurs when a business cannot pay its debts as they fall due or when the value of its liabilities exceeds its assets. In such cases, continuing to trade can expose directors to personal liability for any further debts incurred.
A formal insolvency procedure, such as liquidation or administration, may be necessary. Liquidation involves closing the business and selling off its assets to repay creditors. Administration, on the other hand, might allow the business to be rescued or sold as a going concern.
Tom Fox adds: “Placing a company into formal insolvency can be the right decision to protect the interests of directors and creditors. In the case of Bounce Back Loans, the government’s guarantee means that directors won’t be personally liable for the loan if the business goes into liquidation, which provides some peace of mind.”
Case Study – A Retail Business Facing Insolvency
One small retail business that took out a £35,000 Bounce Back Loan initially used the funds to cover rent, supplier costs, and other business expenses. However, as footfall remained low and online sales struggled to compensate, the business found itself unable to keep up with its loan repayments, even with the extended terms offered under the Pay As You Grow scheme.
After seeking professional advice from Umbrella.UK Insolvency, the company decided to enter into liquidation. The liquidation process allowed for the orderly closure of the business, and the government guarantee on the Bounce Back Loan meant that the directors were not personally liable for the outstanding debt.
Strike Off and Bounce Back Loans
Closing a company informally through the strike-off process may seem like an attractive option for directors, but it is not available if the business has outstanding debts, including Bounce Back Loans. The government has instructed banks to object to strike-off applications from companies with unpaid Bounce Back Loans, meaning that directors must seek an alternative route for closing their business.
Instead of striking off, a formal insolvency process such as liquidation is required. This process ensures that creditors, employees, and other stakeholders are treated fairly, and that the company is closed in compliance with legal requirements.
Tom Fox advises: “Directors who are considering strike-off should be aware that it’s not a viable option if Bounce Back Loan debt remains. They need to explore formal insolvency processes to ensure everything is handled properly and to avoid any future complications.”
Case Study – A Hospitality Business Seeking Strike Off
A hospitality business that had taken out a Bounce Back Loan of £45,000 tried to apply for strike off after closing its doors. However, the strike-off application was blocked due to the outstanding loan. After consulting with Umbrella.UK Insolvency, the business was advised to enter into liquidation. By taking this route, the directors were able to ensure that the creditors, including the bank that provided the loan, were dealt with appropriately, and the government covered the loan repayment through its guarantee.
Expert Help for Bounce Back Loan Debt
If your company is struggling to repay its Bounce Back Loan, it’s important to seek expert advice. Umbrella.UK Insolvency offers free consultations to help you understand your options. “We’ve helped many companies navigate the complexities of Bounce Back Loan debt,” says Tom Fox. “Our goal is to provide clear, practical advice to directors who are unsure of what steps to take next.”
In conclusion, Bounce Back Loans were a lifeline during the pandemic, but for many businesses, they have now become a burden. If you are facing difficulties, reach out to Umbrella.UK Insolvency for guidance.
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