Government-backed Bounce Back Loans of up to £50,000 were introduced in March 2020, giving businesses access to emergency cash at the height of the coronavirus pandemic.

The loans were offered at a fixed rate of interest and did not require a personal guarantee from company directors. Companies also benefitted from a 12-month repayment holiday. Now, however, when repayments are due, many businesses are still feeling the effects of the pandemic.

Tom Fox, Licensed Insolvency Practitioner at Umbrella Insolvency, said: “I think we’ll see many more companies struggling to repay Bounce Back Loans this year.

“Rising costs, staff shortages, supply chain disruption and the withdrawal of government support could all affect companies massively 2022.

“Bounce Back Loans and other government schemes helped support companies through lockdown, leading to a sharp drop in the number of company insolvencies. Now, as government support is rolled back, we’ve seen a marked rise in enquiries.

“Companies in every sector will struggle with rising costs – particularly those related to energy, freight travel and raw materials. But some sectors will be particularly vulnerable, including hospitality and travel.”

Bounce Back Loans in more detail

Bounce Back Loans were originally offered over a period of six years. The interest rate is fixed at 2.5% with the government covering the interest and fees for the first 12 months.

Bounce Back Loan repayments are split into equal monthly instalments and paid directly to the government-approved lender.

If a company can’t make repayments and is forced to close, the government will ultimately become responsible for the loan. However, if a company breaches the terms and conditions of a loan, directors can be held personally liable for the money.

You may be held personally liable for a company Bounce Back Loan if:

1. You used the Bounce Back Loan for personal gain
2. You used the loan to pay other company debts preferentially (for example, paying off business debts you are personally liable for)

The government has recently passed a new bill that gives the Insolvency Service the power to disqualify directors and get a compensation order compelling directors to repay loans if they are used fraudulently.

Should you choose to use Pay As You Grow?

To provide more flexibility and protection for companies that are struggling to make Bounce Back Loan payments, the Government introduced a ‘Pay As You Grow’ scheme to ease financial difficulties.

Pay As You Grow allows companies that have taken out a Bounce Back Loan to:

1. Extend the repayment terms from six years to 10 years
2. Make interest-only payments for six months (this can be done up to three times throughout the duration of the loan)
3. Request a six-month repayment holiday (once you’ve made six payments)

Exploring insolvency

If your company is struggling with multiple debts, Pay As You Grow may not be enough to rescue your company. In this case you should seek professional advice from your accountant or a licensed insolvency practitioner like Umbrella Insolvency.

A professional will be able to offer advice that’s tailored to your situation. They may recommend looking at a HMRC ‘Time to Pay’ arrangement or a payment holiday from other creditors. They may also advise you to pursue an insolvency process.

Company Voluntary Arrangement (CVA)

In some cases, a business that is struggling with loan repayments may still be viable in one form or another. But mounting debt can make it difficult to continue trading normally.

For these businesses, a CVA will allow the business to continue trading while freezing debt interest and allowing the company to make essential cutbacks. Debt is then repaid in a series of contributions to creditors.

Creditors Voluntary Liquidation (CVL)

If a company is in debt and there is no reasonable way it can continue trading then a voluntary liquidation is likely to be more appropriate. The CVL process is carried out by a licensed insolvency practitioner who will distribute assets to creditors before closing the company.

For more information and advice on how to repay Bounce Back Loans or to learn more about insolvency, speak to a member of the team today. Call: 0800 611 8888.