Can a company write off Bounce Back Loans?

Facing difficulty repaying your Bounce Back Loan (BBL) can be a source of significant worry, not only for your business’s financial stability but also for its future. A question that often arises during this time is “Can a company write off Bounce Back Loans”, effectively erasing the debt and moving forward without the burden?

Well, writing off the BBL entirely is not possible for a company that is still trading. But the good news is that there is a range of alternative solutions available, such as Company Voluntary Arrangements (CVAs), Individual Voluntary Arrangements (IVAs), business restructuring, and Debt Relief Orders (DROs), depending on your specific situation and company health.

This guide will provide a comprehensive overview of the options available to businesses struggling with BBL repayments. Keep on reading! 

Can A Bounce Bank Loan Be Written off?

No, Bounce Back Loans cannot be written off while your business is still trading.

Bounce Back Loans are not grants, they are loans provided by the government to help businesses during the COVID-19 pandemic. These loans are expected to be repaid in full by the businesses that took them out. 

They were designed to provide financial support quickly and easily to struggling businesses, with low interest rates and no repayments for the first year. 

However, businesses are responsible for repaying the full amount borrowed, along with any accrued interest, over the agreed-upon term.

Businesses need to plan for the repayment of these loans to avoid financial strain in the future. While they offer immediate relief, careful financial management is necessary to ensure long-term sustainability.

Can you write off a Bounce Back loan if you are a sole trader or self-employed? 

No, as a sole trader, you cannot simply write off a Bounce Back Loan.

The only way for a sole trader or self-employed to potentially cancel a BBL is through a formal insolvency process, like an Individual Voluntary Arrangement (IVA).

In an IVA, a BBL is seen as unsecured debt and can be part of the agreement. This deal lets the sole trader pay back a reasonable amount, based on their money situation. 

Once they complete the IVA and pay the agreed sum, any leftover unsecured debt, including what’s left of the BBL, is cancelled. But, it’s vital to get expert advice before going into an IVA, as it could seriously affect credit scores and future finances.

How to Write Off The Bounce Back Loan?

While Bounce Back Loans (BBLs) cannot be simply written off, a formal insolvency arrangement can offer a path to debt relief, including the BBL, if your business is struggling. 

This process involves creating a business recovery plan in collaboration with an insolvency practitioner. This plan outlines how you can restructure your business and repay creditors (including the lender for your BBL) an agreed-upon portion of your debt over a set timeframe.

If the plan is successful and the agreed-upon amount is paid, any remaining unsecured debt, like the remaining BBL, will be written off. However, it’s important to remember that entering into a formal insolvency arrangement has significant consequences and professional advice is highly recommended.

What happens if I can’t repay my Bounce Bank Loan?

 

If you’re struggling to repay your Bounce Back Loan, there are two main paths you can consider:

1. Pay As You Grow (PAYG) Scheme:

The PAYG scheme, designed to offer flexibility for businesses facing temporary financial challenges, provides several options:

• Extend the loan term: Increase the repayment period from 6 years to 10 years. This lowers your monthly payments by spreading the loan amount over a longer period, easing your immediate financial burden.
• Make interest-only payments: For six months at a time, you can focus solely on paying the interest accrued on the loan, temporarily suspending repayments on the principal amount. This option is available up to three times throughout the loan term, allowing your business to recover and generate income before resuming full repayments.
• Take a repayment holiday: Get a six-month break from all repayments, giving your business crucial time to recover financially before resuming payments.

2. Liquidation:

This is a more severe option involving the formal closure of your business. It should only be considered as a last resort.

If your business fails and can’t repay the BBL, the government usually steps in and pays the lender, essentially writing off the debt for your business

However, liquidation is a complex process with significant legal and financial ramifications. Seeking professional guidance is essential before considering this option.

Remember, exploring the PAYG options with your lender is the recommended first step if you’re facing difficulty with your Bounce Back Loan repayment. This program offers valuable flexibility to help your business recover and fulfil its financial obligations.

Potential risks of closing a limited company with a BBL

Closing a limited company with an outstanding Bounce Back Loan (BBL) carries several potential risks, both for the company and its directors. Here are some key points to consider:

1. Inability to Close: The UK government has taken steps to make it difficult to close a limited company with an outstanding BBL. Banks will typically object to the closure through the “strike-off” process, as they are unlikely to recover their funds.

2. Personal Liability: Directors may become personally liable for the outstanding BBL debt if one of the following applies: 

• They provided a personal guarantee for the loan. 

• They are found to have acted in a way that contributed to the company’s insolvency, such as trading while insolvent or misusing company funds.

3. Legal Action: The lender or government may take legal action against the company or its directors to recover the BBL debt. This could involve:

• Court proceedings: Seeking a court order to force the company to repay the loan.
• Bankruptcy: Initiating bankruptcy proceedings against the company.

4. Negative Impact on Credit Rating: Both the company and its directors could face a negative impact on their credit rating due to the outstanding BBL debt and potential legal action. This could make it difficult to access future loans or credit.

5. Additional Fees and Penalties: Late repayments or non-payment of the BBL may incur additional fees and penalties, further increasing the overall debt.

Can I transfer a Bounce Back Loan to another company?

No, you cannot transfer a Bounce Back Loan to another company

Bounce Back Loans are specifically granted to the business entity that applied for them. 

They cannot be transferred to another company or individual. These loans are intended to provide financial assistance to the business that applied for them, based on its financial situation and eligibility criteria at the time of application.

If you have multiple businesses and each qualifies for a Bounce Back Loan, you would need to apply for separate loans for each eligible business. Transferring a Bounce Back Loan to another entity is not permissible under the terms of the scheme.

Can I strike off my company with a Bounce Back Loan?

Yes, you can strike off your company with a Bounce Back Loan, but you must repay the loan first.

Before striking off your company, you need to settle all outstanding debts, including the Bounce Back Loan. The loan must be repaid in full, along with any accrued interest, before you dissolve your company. Failing to repay the loan before striking off your company can have serious legal and financial consequences.

It’s essential to communicate with your lender and make arrangements to repay the loan before proceeding with the striking-off process. Once the loan is settled, you can follow the necessary legal procedures to dissolve your company, ensuring compliance with all relevant regulations and obligations.

Alternative To Liquidation When You Can’t Repay Your Bounce Back Loan

If you’re struggling to repay your Bounce Back Loan (BBL) and considering liquidation, fear not! Several alternatives can help your business recover and avoid closure. Here are some options to consider:

1. Company Voluntary Arrangement 

A CVA is a formally negotiated agreement between your company and its creditors, including the BBL lender. It allows you to propose a revised repayment plan for the BBL and any other outstanding debts. Here is how it works:

• You’ll need to appoint a licensed insolvency practitioner to guide you through the process. They will assess your company’s financial situation and develop a realistic repayment proposal.
• Your insolvency practitioner will present your proposal to your creditors, including the BBL lender.
• For the CVA to be implemented, it needs to be approved by a majority of creditors, both by the number of creditors and the total value of debt they hold.
• If approved, you’ll be bound to the agreed-upon repayment plan, typically involving monthly instalments over a set period, usually 3-5 years.

2. Individual Voluntary Arrangement 

Similar to a CVA in principle, an Individual Voluntary Arrangement (IVA) is an agreement a sole trader will strike with their creditors, spreading payment terms over a set period. Typically lasting five years, an IVA, akin to a CVA, can be tailored based on the arrangement’s particular circumstances, including terms and payment amounts.

3. Business Restructuring

Both sole traders and limited companies might think about restructuring their business operations. This could mean trimming unnecessary costs, broadening income sources, or reassessing business strategies to boost financial stability

4. Debt Relief Order (DRO) 

Struggling sole traders with low income and manageable debt might find hope in a Debt Relief Order (DRO). 

This formal insolvency option, suitable for individuals with debts below a specific threshold, offers a year of frozen repayments and interest accrual on all debts, including the Bounce Back Loan (BBL). If successfully completed, the remaining unsecured debts, potentially including a portion of the BBL, are written off.

5. Insolvency 

If you’ve tried everything else and still can’t repay your loan, then insolvency might be your best option. If you’ve used the loan properly and without any wrongdoing, insolvency could be the best way to fully clear the debt.

Insolvency is a legal process where your company officially declares its inability to repay its debts. This triggers the appointment of an insolvency practitioner who will oversee the process of winding up your company’s affairs.

But insolvency is a big decision, so it’s crucial to talk to a professional before going ahead. This is essential to make sure you won’t end up personally responsible.

Get the Best Insolvency Support With Vanguard Insolvency 

Bounce Back Loans had diverse impacts on companies. While for some, it served as a crucial lifeline, ensuring survival amidst the Covid crisis, others found it insufficient to avert severe financial challenges.

If your company is struggling with the repayment of its Bounce Back Loan and navigating financial distress, Vanguard Insolvency is here to assist. 

With long years of expertise in resolving financial issues for companies, we can offer tailored solutions to address your specific situation.

Reach out to us today for a free consultation. Our experienced team will guide you through the available options, helping you make informed decisions to alleviate financial strain.