I Can't Pay Back My Bounce Back Loan - What Are My Options?
While Bounce Back Loans once offered some much-needed respite for business owners, they’ve now become a source of worry for many.
The turmoil of the pandemic and the uncertainty of the cost of living crisis have caused many company’s finances to enter into a downward spiral, often for reasons beyond their control.
However, options are still available for company directors, with special statutory allowances and business recovery procedures on standby to help companies in need.
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Who Is Liable for a Bounce Back Loan?
You cannot be held personally liable for Bounce Back Loan debt under normal circumstances – if your business fails, the government will pick up the bill.
This means that entering into corporate insolvency measures will not result in your personal assets being affected. The British Business Bank has stated that no recovery action can be taken against your primary house or vehicle.
However, breaking the rules around Bounce Back Loans may result in you becoming personally liable for the debt – this can result in you being made bankrupt.
Making a False Application
The government won’t provide security to those who got a Bounce Back Loan loan under false pretences.
To qualify for a loan, you must have:
- Been running an active trading company
- Established the business no later than the 1st March 2020
- Earned at least 50% of your profits from trade
- Been negatively impacted operationally by Covid-19
If you falsely claimed any of these things – for example, maybe most of your profits came from services, or your business was inactive – the government may insist that you repay the loan yourself.
Misusing the Funds
Bounce Back Loans were intended to provide a lifeline to struggling business owners; as a result, the funds must be used for the economic benefit of the business.
If it’s discovered that you used your business to obtain the loan – and then spent the money on yourself – you’ll find yourself having to repay all of the misused funds personally.
If you took out some of the funds as a dividend, you may be able to argue your case. That being said, the loans were meant to be for struggling businesses, so you may find yourself in hot water for taking out an unreasonable salary.
Making Preferential Payments
This serves as a specific example of misapplying funds. If you use your Bounce Back Loan to help repay an overdrawn director’s loan account or to pay back a personal guarantee, you could be accused of making preferential payments.
If you enter into liquidation, you may be made liable for any amounts considered preferential.
What Options Do I Have if I Can’t Afford to Repay?
If you can’t afford to repay your Bounce Back Loan, there are a range of options for you to consider.
You can make use of a government scheme, pursue company closure, or enter into a business recovery procedure.
Pay As You Grow Scheme
Pay As You Grow allows you to:
- Pause repayments entirely for 6 months (one time only)
- Switch to interest-free repayments for 6 months (up to 3 times)
- Extend the repayment period from 6 years to 10 years
Using the Pay As You Grow scheme can alleviate financial pressure, giving your business the time it needs to get back on its feet. Using the scheme will not impact your company’s credit score, so you won’t have to worry about it affecting your business.
Creditors’ Voluntary Liquidation (CVL)
As the most common form of liquidation in the UK, a Creditors’ Voluntary Liquidation has a lot to offer insolvent company directors. The company’s assets are sold for the benefit of company creditors, while directors are offered a safe exit from the business:
- Safeguards directors from creditor legal action
- Prevents creditors from contacting directors
- The cost of the procedure is usually covered by proceeds of liquidation
- All remaining debts are written off
The process can take around 2 years, but your involvement will be minimal once control is handed over to the liquidator. Once the procedure is completed, you’ll no longer have to worry about your Bounce Back Loan, allowing you to move on.
Company Voluntary Arrangement (CVA)
For directors who are struggling to repay their company’s Bounce Back Loan but wish to stay open, a Company Voluntary Arrangement is their best bet.
- Stretches out repayments, making them more affordable
- Protects business from closure so long as payments are met
- Freezes interest on debt
- Debts remaining after 5 years may be written off
A CVA may affect your company’s credit, but it gives it a fighting chance at returning to profitability. The arrangement can include most types of company debt, such as Bounce Back Loans.
Speak to an Expert Today
If you’re struggling to repay a Bounce Back Loan, it’s best to contact an insolvency practitioner as soon as possible.
Our team can assess your situation and let you know which option is right for you; early action increases the available options and boosts the chance of a successful recovery.
Get in touch today to book a free consultation.
