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What is the Bounce Back Loan Scheme (BBLS)

The Bounce Back Loans (BBLS) are loans of up to £50k, 100% backed by the government, with no personal guarantees and quick and easy to apply for. This ensures access to capital for thousands of small and medium sized enterprises (SMEs).

Following widespread criticism of the Coronavirus Business Interruption Loan Scheme (CBILS) which saw a small fraction of applicants successfully secure funding, the government subsequently introduced the Bounce Back Loan Scheme (BBLS) as an alternative.

As the Covid-19 pandemic restrictions continue to threaten businesses across the country, the government hopes to help small businesses survive these challenging times and give Britain’s SMEs the resources to ‘bounce back’ quickly once trade is allowed to resume.

The Bounce Back Loans (BBLS) are loans of up to £50k, 100% backed by the government, with no personal guarantees and quick and easy to apply for.  This ensures access to capital for thousands of small and medium sized enterprises (SMEs).

They are provided interest-free for the first 12 months and then have a 100% Government backed guarantee for lenders. Once the eighteen months are up, there is an interest rate of 2.5 per cent per year and repayments can be stretched for up to 10 years.

Are directors personally liable?

To protect directors from being made personally liable in any case of loan default, lenders of such loans are not allowed to request personal guarantees. The company itself is liable for any defaults, such as being unable to repay the Bounce Back Loan in the future, therefore it protects the director’s personal finances (as long as the director has “acted reasonably and responsibly”).

What can the company use Bounce Back Loans for?

You can use the Bounce Back Loan to pay staff salaries including directors. It can also be used to pay rent, business rates, monthly business expenses or overheads such as telephone and utility bills. Directors may want to use it to refinance other business debts to lower related interest costs.

Bounce back Loans cannot be used to pay dividends or to pay into a personal savings account to make interest. It cannot be used for any purposes other than a business-related purpose. To do this would not be “acting reasonably and responsibly” and you may be made personally liable if the company enters into voluntary or compulsory liquidation.

Using the Bounce Back Loan to pay off debt.

Some people have been applying for Bounce Back Loans for their companies and then using the Bounce Back Loan to pay off debt either for the company or personal debt.

The loan can also be used to refinance existing borrowing although you need to exercise caution if you are planning on doing this, especially if the company has a significant amount of existing debt which is owed to a number of creditors including some who have the benefit of a personal guarantee from a director and those creditors who don’t whose debt is “unsecured”. If the director paid off only the creditor debt that was personally guaranteed and thus leaving unsecured creditors unpaid then this is likely to be treated as misfeasance with this “preference” payment being challenged and set aside by the Liquidator.

The government did relax insolvency rules regarding wrongful trading from March 2020 to the end of June 2021 as it was difficult to make the same type of decisions that you would normally take pre pandemic.  However, the government has not relaxed other bits of the insolvency legislation such as the creation of a preference.  This means that if your business was/is insolvent, which in legal terms probably was as the pandemic took hold, then the normal rules still apply.

What if you know you cannot pay back a Bounce Back Loan?

It is recommended that you do not run down the Bounce Back Loan money until there is nothing left to pay creditors, wages, or liquidation costs.

Ultimately, if your company cannot repay this emergency Bounce Back Loan, it is not too problematic as long as you have acted “reasonably and responsibly as a company director”.  Nobody knew how long the pandemic would last. If the situation changed and you act properly there is nothing much to worry about.  But it is likely that if you do not pay back the Bounce Back Loan then your credit rating might be affected at your bank.

What does not acting “reasonably and responsibly” mean?

If you used the Bounce Back Loan to repay yourself any loans that you introduced or pay dividends or drawings when the company cannot pay normal suppliers or creditors, then this is called a preference and is against the law set out in the Insolvency Act 1986.

Can a Bounce Back Loan Be Written Off?

The Bounce Back Loan was a loan to the company, not you personally, even if you are a director and sole shareholder. So, if the company goes into liquidation and there are no company assets to realise and distribute to creditors then the loan will be written off as well as the company ceasing to trade.  Watch out if you have used the Bounce Back Loan to pay off personal debts that could be seen as fraudulent.  If the company cannot repay the Bounce Back Loan, the bank or a liquidator is likely to investigate where it went and conclude that it was “stolen” from the company.  The veil of incorporation will be lifted, and you will be personally liable for the debts.   Plus, you may well get disqualified from being a director of a company.

If you would like a FREE CONSULTATION with an Umbrella.UK licensed insolvency practitioner to discuss your company’s situation, please call 0800 611 8888

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