What is the Bounce Back Loan Scheme (BBLS)
Bounce Back Loans (BBL’s) are loans of up to £50k, advanced by lenders to businesses, who following the onset of the Covid-19 pandemic in March 2020, required easy access to emergency funding. Over two million businesses took out one of these Bounce Back loans, which equated to a total of £48 billion being loaned out. The terms of the loans ensured that no payments had to be made by the business for the first 12 months, interest rates were kept low with the loans guaranteed by the government (and not the directors).
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What can a business use Bounce Back Loan for?
Bounce Back loans were paid out on the condition that they were not to be used for personal purposes but instead had to provide an economic benefit to the business.
They could be used to pay rent, business rates, monthly business expenses or overheads such as telephone and utility bills.
They could not be used for any purposes other than a business-related purpose. To do this would not be “acting reasonably and responsibly” and directors could find themselves being held personally liable in the event that the business is placed into liquidation.
Problems repaying a Bounce Back Loan
If you are concerned that you cannot keep up with your Bounce Back Loan repayments, there are options open to you. The Pay As You Grow scheme https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/pay-as-you-grow/ offers a range of payment solutions to help make repaying an outstanding Bounce Back Loan a little easier. Through PAYG, you can delay your Bounce Back Loan repayments by taking a six-month payment holiday. During this time you will not be expected to pay anything towards your Bounce Back Loan, although interest will continue to be applied and will be added onto the balance of the loan.
Alternatively, you can apply for a Bounce Back Loan extension which will see you make repayments over 10 years rather than six. Although this will help with your immediate Bounce Back Loan repayment problems, it will mean you repay more over the life of the loan due to spreading your payments over a longer duration.
If you know your company can’t afford to pay its monthly Bounce Back Loan repayments even with the help on offer from your lender, you should seek immediate expert help and advice from Umbrella.
Formal insolvency and a Bounce Back Loan
If your company is struggling to pay its debts as and when they fall due each month or the total value of its debts exceed the total value of the assets then your company is insolvent and you may need to consider whether it is appropriate to place the company into a formal insolvency procedure. Continuing to trade your company when you know it is insolvent can result in directors being held personally liable for ongoing debts.
A formal insolvency procedure could include Administration (link here to Administration page?) if it is considered that the business could be rescued or sold a going concern or Liquidation (link) if the company is beyond rescue. Liquidation ensures that the business is closed down in an orderly manner and that all stakeholders such as creditors, employees, and customers are all treated fairly.
As part of the liquidation process, all assets of the company will be “liquidated” into cash with the proceeds going towards repaying creditors as much as possible according to a set hierarchy (link here to the article you just wrote). Any debt which remains after this process, unless secured by a personal guarantee, is written off.
Bounce Back Loans are secured by the government and directors did not have to provide a personal guarantee. This means that in the event of the company being unable to repay the loan due to Administration or Liquidation, the responsibility for repaying the bank falls to the government rather than the director.
Can I strike off my company with a Bounce Back Loan?
Strike off is an informal way of closing down a company which is no longer needed. The strike off process is achieved by filing a a DS01 form at Companies House. As long as no objections are received from creditors, the strike off process is a relatively quick and inexpensive way of bringing an end to a limited company.
However, if your business has outstanding debts, including Bounce Back Loans, then expect your strike off application to be unsuccessful given that the government has requested that banks formally object to any company with an outstanding Bounce Back Loan which attempts to have their company closed through the strike off process.
If you have a Bounce Back Loan you cannot repay, strike off is not an option. Instead, the closure of the company will need to be done through a formal insolvency process which must be administered by a Licensed Insolvency Practitioner. Umbrella will take the time to understand your situation and the challenges you are facing. We will discuss all available options open to you and provide you with our expert recommendation. Call our team today.
If you would like a FREE CONSULTATION with an Umbrella.UK licensed insolvency practitioner to discuss your company’s Bounce Back Loan situation, please call 0800 611 8888
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