Can You Write Off a Bounce Back Loan?
While Bounce Back Loans were once a lifeline for many business owners, they’ve now become a source of worry.
But can you actually write off Bounce Back Loans?
In this guide, we’ll explain options for repayment, how you can get out of Bounce Back Loans, and how you can get the advice you need.
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Will Bounce Back Loans Be Written Off?
Unfortunately, there is currently no “expiry date” in place for Bounce Back Loans. This means that they will never be passively written off.
The government expects all Bounce Back Loans to be repaid in full and reminds debtors that they are fully liable for the debt.
Although the government provided lenders with 100% security for all Bounce Back Loans, it will only step in to pay the debt if the company cannot realistically do so.
So, what options are there for struggling companies?
Options to Repay a Bounce Back Loan
If you have an unaffordable Bounce Back Loan, the usual solution is to liquidate your company, allowing you to write off the debt.
Naturally, though, many company directors aren’t too keen on the idea of liquidating their hard-earned businesses. If this sounds like you, you’re in luck—there are some alternatives available.
These options allow you to deal with your Bounce Back Loan debt while avoiding closure.
Pay As You Grow Scheme
The Pay As You Grow Scheme was introduced in September 2020 to help make Bounce Back Loan repayment more affordable.
If you’ve not taken advantage of this scheme yet, it should be your first course of action.
The Pay As You Grow scheme doesn’t allow you to write off Bounce Back Loan debt. However, it does offer three powerful means of alleviating financial pressure:
- Pause Repayments Entirely: The Pay As You Grow Scheme lets you stop all Bounce Back Loan repayments entirely for up to 6 months. You’re only allowed to do this once, so be sure to make the most of it.
- Pay Loan Interest Only: This is one of the more flexible options. Pay As You Grow allows you to pause the normal repayment of your loan and switch to paying interest only for up to 6 months. You can do this three times, making it a handy way to quickly reduce your monthly overhead.
- Extend the Repayment Period: The most powerful long-term solution offered by the Pay As You Grow Scheme is the ability to extend your loan period. You can extend it from 6 years to 10 years. This makes your instalments much more manageable. Remember, though, that you’ll have to continue paying that 2.5% interest, so it will be more expensive overall.
Using the Pay As You Grow Scheme will not affect your credit score.
Company Voluntary Arrangement (CVA)
A Company Voluntary Arrangement is a formal insolvency solution which acts as an effective alternative to liquidation.
It functions as a repayment plan, allowing you to stretch out your debts and even write off some of what you owe.
A CVA is a powerful debt solution, offering many benefits to businesses:
- Repayments are spread over 3-5 years: A CVA bundles all your debts together and stretches them out, greatly reducing your monthly running costs.
- Freezes interest and charges: Typically, when you extend the term of your loan, you end up paying more overall, thanks to the continued accrual of interest. A CVA freezes all interests and charges, meaning you won’t have to pay anything extra.
- Offers legal immunity from creditors: As long as you keep up with your CVA payments, your creditors cannot take out any legal action against you. This means you’re safe from any liquidation or bankruptcy petitions.
- Some debts can be written off: If your company makes all its required repayments, any remaining unsecured debt can be written off at the end of the agreement.
You’ll need the backing of 75% of your creditors – by value – to enter into a CVA.
This might sound daunting, but it’s actually easier than you might think. Creditors simply need to be assured that they’ll get a better return than they would in a liquidation. They’ll also need to be convinced that you can actually keep up with the proposed repayments.
Our team can help you to sculpt a proposal that is affordable for you and attractive to your creditors.
What if I Can’t Afford to Repay My Bounce Back Loan?
If your company has already exhausted the provisions of the Pay As You Grow Scheme and you can’t get the backing needed for a CVA, it’s time to start thinking about liquidation.
Creditors’ Voluntary Liquidation (CVL)
Entering a Creditors’ Voluntary Liquidation will allow you to write off your Bounce Back Loan debt.
A liquidator sells the company’s assets, using the proceeds to pay off creditors as much as possible. Any remaining debts are then written off.
A CVL is the most common form of company closure in the UK, offering many benefits to directors:
- Relieves pressure from creditors: When you enter a CVL, your creditors are prevented from contacting you. They must instead talk to your appointed liquidator. You can enter a CVL in as little as 14 days.
- Upholds your legal duties: When your company becomes insolvent, you have a duty to protect the interests of your creditors. Failing to do so can result in accusations of wrongful trading or misfeasance. Entering a CVL helps to avoid this.
- Claim redundancy quicker: Entering a CVL allows employees – and directors – to claim statutory entitlements from the government. Staff can claim unpaid wages, holidays, notice pay, and redundancy.
- Usually comes at no personal cost: A liquidator has to carry out a CVL, meaning the process does attract some professional fees. Thankfully, for directors, these are usually just taken from the liquidation proceeds.
At this point, you’re probably thinking: “Why should I voluntarily liquidate my company? Why not just wait until I’m forced into it by the court?”
That is because waiting for compulsory liquidation often results in wrongful trading and misfeasance on the part of the directors. If you’re found liable, you can be forced to repay company debts personally, disqualified from future directorship, and – in some cases – even imprisoned.
When you enter a CVL, however, you are demonstrating your commitment to creditors. This helps avoid any legal and financial fallout, allowing you to move on to your next venture worry-free.
Can I Strike Off My Company with a Bounce Back Loan?
If your business has an outstanding Bounce Back Loan – or any other debts it cannot afford to repay – company strike-off is not an option.
This is because strike-off simply removes the business from the Companies House register and doesn’t settle its debts.
Many directors apply to have their company voluntarily struck off or allow it to undergo compulsory strike-off in an effort to dodge their debts. Once the company has been struck off, creditors have no legal body left to pursue.
However, creditors can object to a company being struck off. They can even have the company reinstated if the strike-off has happened already. They will then apply to have the company forced into liquidation to get what they’re owed.
This will open up an investigation into the conduct of the company’s directors. The strike-off attempt will likely be viewed as an attempt to deprive creditors, leading to charges of misfeasance and wrongful trading.
If found liable, you can be forced to personally repay company debts, hit with large fines, and disqualified from future directorship. If you can’t afford these debts, you’ll be forced to declare bankruptcy.
In order to avoid this, you’ll need to settle your debts properly with the help of a formal insolvency solution.
Get Help with Your Bounce Back Loan
If you need help writing off your Bounce Back Loan, speak to an insolvency practitioner.
Our expert team can assess your situation, guiding you as to the best course of action. You may find you just need the assistance of a CVA, or perhaps liquidation can help you get the fresh start you need.
Get in touch today to book a free, no-obligation consultation.