The Bounce Back Loan scheme has allowed many businesses to survive the difficult trading conditions in 2020/2021. As normal trading resumes as the pandemic eases, businesses are facing the prospect of repaying Bounce Back Loans.
Your bounce-back loan responsibilities
Bounce Back Loans allowed your company to take out a loan up to the value of 25% of your projected turnover, with a maximum value of £50,000. For the first 12 months, they required no repayments but the deadline for repayment has been passed for many companies and, if you had taken one out you must begin repaying it.
A fixed rate of 2.5% interest applies to the loans which have been covered for the first 12 months by the government. If you have passed the 12-month threshold since receiving your loan you will have to begin monthly repayments. These vary based on the size of your loan and the payment plan you select.
For many businesses, the loan has allowed them time to stave off financial ruin during the pandemic and they are now operating as they were previously. But if your business is still being affected by the pandemic’s unusual trading conditions, and you are unable to repay your loan, there are options available to you.
What are my options if I can’t repay my Bounce Back Loan?
Your best course of action if you can’t repay your BBL depends on whether you believe your inability to repay is temporary or permanent. In other words, will you be able to repay the loan but you just can’t right now, or will you never be able to repay it?
If you believe repayment issues are only temporary the government has options to accommodate you.
Pay as you Grow scheme
The Pay as you Grow (PAYG) Bounce Back Loan scheme provides flexibility for businesses struggling to repay their Bounce Back Loans.
It offers 3 primary benefits:
- Delaying the deadline for the first payment by 6 months giving you 18 months in total before repayments begin.
- Extending the timeframe for repaying the loan from 6 years to 10 years. This can reduce your monthly repayments by almost half.
- Only making interest payments for 6 months.
All of these options are designed to help your business survive until normal conditions resume and you can repay the loans in full.
If you are still unable to repay your BBL your company is likely in a state of insolvency. It is important as a director that once you believe your company may be insolvent that you take action as you have specific responsibilities to execute.
It may be the case that your business can be restructured and continue operating but more commonly insolvency proceedings must begin.
If you are unsure if your company is insolvent, or you want advice on the next steps, you should contact a licensed Insolvency Practitioner. We offer free consultations and will help you make the most out of your company’s financial situation.
Am I personally liable for my BBL?
You, as the Director of a company, are generally not personally liable for the repayment of a BBL. They are secured by the Government so would not have required any personal collateral when you applied for them.
There are however a small number of scenarios where you may be personally liable for them, these include:
- If the funds haven’t been used for the benefit of the company – i.e., directors taking large bonuses or investing in personal assets.
- Paying off creditors in an improper order – within insolvency proceedings, creditors are repaid in a specific order and you must act for the benefit of the creditors as a whole. If you were to repay certain creditors but not others that could see you become personally liable
In summary, personal liability only occurs when you as a director have acted improperly. It is important then that you seek the assistance of a professional insolvency practitioner who can help you avoid mistakes. See Bounce Back Loans and Personal Liability for more information.
What happens to a BBL during Insolvency?
If your company cannot be restructured successfully then Insolvency Proceedings must begin. With the help of a licensed insolvency practitioner the company will be closed and all of its assets used to pay creditors.
Bounce Back Loans are underwritten by the Government, so any debt not repaid will be covered by them. Once the company is closed you are free to move on to your next venture. See Bounce Back Loans and Liquidations for more information.
If you would like expert advice on the processes described above or any more information on Bounce Back Loans, contact Focus Insolvency group for a free consultation.