I cannot afford to pay Bounce Back Loan

Many are worrying “they can’t repay Bounce Back loan” and what solutions there are?

Do you need business re-finance help or company closure advice?

The Bounce Back loan scheme could help you if you are a company that has been financially impacted by the COVID-19 pandemic.

You can also find more information on the Coronavirus Business Interruption Loan Scheme (CBILS) if you need help paying this.

Let’s dive in to explain all the business debt solutions you might be able to utilise.

What is a Bounce Back Loan?

A Bounce Back loan is a loan scheme created by the Government to provide aid of £2,000 to £50,000 for small businesses, amid the Coronavirus pandemic.

The scheme has been put in place to allow small businesses to access emergency finances quickly.

The funding can be used for the following reasons:

• To pay staff and director’s wages
• To pay for business rent
• To pay monthly business costs and rates
• To pay for overhead expenses, such as electricity bills
• To refinance business debts and reduce interest costs

The business loans are completely interest-free for up to 12 months, after this point, there is a 100% Government-backed guarantee for the companies who are using the loan scheme.

After 18 months on the scheme, there is the introduction of a 2.5% interest rate per year.

The Bounce Back loan repayments for the loan funds can be spread across 10 years.

Most people tend to make monthly payments to their licensed insolvency practitioners, to make the back loan repayments more manageable.

Directors cannot personally be made liable for default or missed monthly repayments, it would be the company that would be liable. Therefore, personal finances won’t be threatened.

How Can I Reduce My Monthly Bounce Back Loan Repayment Amount?

The UK Government announced a scheme called Pay As You Grow, which provides additional support and an extended timeframe for businesses struggling to repay their loan.

The Bounce Back Loan scheme was originally designed to be paid back in the 12 month allocated time slot, however, due to the ongoing restrictions as a result of the pandemic, this hasn’t always been possible.

When the Bounce Back Loan began, future circumstances were difficult to predict and the pandemic has spanned for longer than anyone seemed to anticipate.

So, despite the best efforts from businesses to repay their unsecured debts, many have found it difficult to return back to their standings pre-pandemic, and the Government have acknowledged this.

That’s why they have implemented the PAYG scheme to help businesses who are struggling through no fault of their own.

Can The Pay As You Grow (PAYG) Bounce Back Loan Help?

The Pay As You Scheme can help out companies who are involved in the Bounce Back Loan Scheme by reducing the monthly repayments.

Here are the ways that the PAYG scheme can help your business:

• You can delay your repayments for 6 months – This is additional to the 12-month interest-free period awarded at the start of the Bounce Back Loan. You can qualify for a 6-month delay even if you haven’t made any repayments.
• You can stretch the repayment period from 6 years to 10 years – By adding on an extra 4 years, this would decrease your monthly repayments, giving your business more chance to improve cash flow.
• You can request to make interest-only payments for up to 6 months – This will lower your repayments for 6 months as you won’t be paying any additional interest.

It is worth taking some time to evaluate which option may be best to keep your business out of financial difficulties.

What If I Know I Cannot Afford To Pay Bounce Back Loan Back?

To put it bluntly, if you know you can afford to pay a Bounce Back Loan back, then you shouldn’t take one out in the first place.

It is important not to take out a Bounce Back Loan unless there are no funds to pay creditors, wages or costs for liquidation.

For example, if you take out a Bounce Back Loan and use it to pay dividends rather than to pay creditors, this is deemed as preference and is illegal under the Insolvency Act 1986.

If you are unsure of any of the terms of the scheme, then seek out free advice from an insolvency service.

They can talk you through accessing emergency finance, what is deemed as wrongful trading and other important aspects of the scheme.

Bounce Back Loan Declaration

If it gets to the point where you can’t pay back your Bounce Back Loan, then the licensed insolvency practitioner will review the declarations made on the initial application for the loan scheme.

The application required business owners to be honest about how the Coronavirus pandemic had detrimentally impacted their company.

It also required the limited company director to confirm that their business was a profitable business prior to the start of the pandemic in 2020.

If upon review, the information confirmed in the application is proven to be false, then the company directors may be deemed liable for the outstanding Bounce Back Loan, after company liquidation.

What Are The Consequences If I Cannot Pay Back My Bounce Back Loan?

No personal guarantees are required for a Bounce Back Loan, so essentially, if you cannot repay the money borrowed through the Bounce Back Loan Scheme, the liability falls onto the Government to repay the bank.

This might be reassuring, but remember that this guarantee is only secured for companies that have been deemed insolvent.

If your limited companies are still actively trading under Companies House, you are still liable to make your monthly payments.

Despite you not being held personally liable for money you are unable to pay back, there is the risk of your credit rating dropping as a result of the missed repayments.

So, if you owe money, it is crucial to pay the money lent back to ensure you don’t negatively impact your credit score and can still pass credit checks.

You can check out our Little Loans review page that can help you out with borrowing money in an emergency!

Restructuring My Limited Company With a Bounce Back Loan

Restructuring and refinancing your Limited Company could be a possibility if you think you will struggle to repay a Bounce Back Loan but still believe your company is profitable.

The restructuring would be beneficial as it would help to ease your cash flow, straight away.

It isn’t unusual for the Bounce Back Loan to be just one of many business loans owed by a company.

Holding many loans may encourage a company to try and negotiate with creditors, in an attempt to lower their monthly repayments.

Time To Pay

One option is to incorporate HMRC tax arrears into a Time To Pay (TTP) agreement. A TTP is an HMRC payment plan which may allow you an additional 12 months to pay off any owed debts or business loans.

If you are interested in a TTP you can contact HMRC yourself or you can get licensed insolvency practitioners to do it on your behalf.

Company Voluntary Arrangement

Another option for businesses fighting off multiple debt collection agencies is to enter a Company Voluntary Arrangement (CVA).

A CVA, similar to a PVA, allows many businesses to make a singular monthly payment, rather than multiple payments per month to more than one debt collection agency.

A CVA can be initiated via a formal insolvency procedure in which an insolvency practitioner will need the approval of all creditors before the CVA can be set into motion.

The main benefit of a CVA is the long-term certainty you will hold over your debts; however, you will need to establish your business as a feasible trading entity with the capability to turn a profit.

If this cannot be proven, it is unlikely that your company would be able to secure a CVA.

For more information on CVA’s read our detailed article, which will tell you all you need to know!

Can I Close My Company If I Have a Bounce Back Loan?

Similar to any other loan, a Bounce Back Loan will be included in the liquidation of an insolvent company.

There are two ways of initiating the liquidation process:

1. You can wait for your creditors to force your business into a compulsory liquidation via a secured court order, but this can be a drawn-out and tedious process.
2. The company director can initiate the liquidation themselves via a Creditors Voluntary Liquidation (CVL)

With a CVL, the next step would be to hire an insolvency practitioner to locate the personal assets and company assets, sell these assets to creditors, and distribute the proceeds accordingly.

After liquidation, the business in question will expire as a legal entity and any existing debt will be written off, apart from any debts that have been secured with a personal guarantee.

If a loan has been secured with a personal guarantee, the loan remains solely in the hands of the guarantor and must be repaid.

The Bounce Back Loan does not include a personal guarantee, therefore, your company will not be liable for chasing repayment, provided the funds have been used in a proper manner.

Can You Be Made Personally Liable For Bounce Back Loans During Liquidation?

While no personal warranty is included in a Bounce Back Loan, there are two possible scenarios in which personal liability may become an issue. These include:

Improper Use of Funds

The funds are provided with the purpose of helping the economic stability of the company, and the company directors can basically choose how to distribute the funding.

However, funding cannot be used improperly, for example, it would be deemed taking advantage of the scheme if the directors were to use the loan to buy personal capital, pay off personal debt or even purchase properties.

If a company was to fall into liquidation, an insolvency practitioner would carry out a formal review of how the funds of the BBL scheme were spent.

If through the review, they found the loan was spent immorally, also known as misfeasance, then the company’s directors would be made personally liable for repayment, putting their own assets at risk of repossession.

Improper Payment of Creditors

Bounce Back Loans can be used to refinance businesses’ existing debt, however, if your company becomes insolvent you must act in a way to benefits your creditors as a whole.

Any favouritism or preferential payments could make the company’s directors personally liable for the repayment of the loan.

A preferential payment could be classed as a payment made to a company linked to the business or to a friend, while other creditors, such as HMRC, don’t receive any repayments.

When a company enters liquidation the insolvency practitioner will check through all the businesses transactions and if they deem preferential payments have been made, then, again, the companies directors will fall liable to pay back the loan.

What Steps can You take To Avoid Personal Liability?

The main intention of the Bounce Back Scheme was to aid small businesses who have struggled due to the COVID-19 pandemic and can’t easily repay their debts.

Even with the help of this scheme, some businesses may be unable to pay back all their debts and may be worried about what this might entail.

Rest assured that provided you have used the loan in the correct manner, you won’t receive any personal liability should your company go into liquidation.

If you have any queries about how to correctly use the scheme, then contact the British business bank you are taking the loan out with or a debt advisory agency.

How To Find Out If I Have a Misused Bounce Back Loan?

If you feel as if you have misused the Bounce Back Loan, you should speak with an experienced insolvency advisor straight away.

The expert will be able to advise as to what options you might have if your actions are deemed inappropriate.

They will also be able to give you an idea of the repercussions if you were to place your company into liquidation given your malpractice with the Government introduced company debt scheme.

It is always a good idea to undertake debt counselling prior to acquiring a new loan to secure funding, as it is important to be aware of the terms and conditions.

Making ‘Preference’ Payments

Let’s go into preference payments in a bit more detail.

A preference payment is when you favour one creditor over the rest, meaning you direct a surplus of money to a particular creditor without providing the same level of repayments to others.

There are many reasons as to why a company might favour one creditor over the rest, one being they have professional or social ties with the company or individual.

Another example of preference payments is when the company uses Bounce Back Loans to pay off other debts, with the knowledge that they won’t then be able to repay the Bounce Back Loans.

Further details of preference payments can be found in the Insolvency Act 1986.

If your company has been found to have made preference payments, then you could be made personally liable for the repayment of the Bounce Back Loan.

Can Bounce Back Loans Be Written Off?

Bounce Back Loans can be written off if your company falls into liquidation, provided the loan has been used for proper economic benefit due to cash flow problems or unprecedented business interruption.

The Federation of Small Businesses has theorised granting small businesses a time-limited release by which the BBL scheme can be written off in trade of all-employee equity stakes.

However, this idea has not yet been confirmed.

What Other Solutions Are Available For Repaying Business Coronvirus Loans

If you are not able to repay a bounce back, BBLS loans you are able to access several debt-relief options.

Individual Voluntary Arrangements (IVA)

There are Individual Voluntary Arrangements (IVA) available that can help sole traders who are struggling to pay back BBLS loans.

In an IVA, you make an agreement with your creditor to repay your loan involving an insolvency practitioner.

To speak to a professional IVA debt advisor, check out the list of best IVA companies in the UK.

Debt Management Plans

A debt management plan is a great solution to help you reduce your monthly repayments into a single affordable payment plan.

The DMP company must be FCA approved so you know the setup with being legislated and regulated for you to enter.

To speak to a professional DMP debt advisor check out the list of best DMP companies in the UK.

Creditors Voluntary Liquidation (CVL)

If a personal guarantee wasn’t signed when you took out your loan, you could consider closing or selling your company.

You can restructure your company and sell it or initiate a CVL to go into administration.

To speak to a professional CVL debt advisor check out the list of best CVL companies in the UK.

Struggling With Other Debts

Here are some other debt guides if you are struggling with different types of debts:

• Capify Business Debts
• Capital On Tap Business Debts
• Coronavirus Business Interruption Loan Debts Written Off
• Coronavirus Large Business Interruption Loan Scheme
• Directors Redundancy
• Funding Circle Debts
• Funding Options Debts
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• I cannot afford to pay Bounce Back Loan
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