Bounce Back Loans (BBLS) provided a financial lifeline for many UK businesses during the COVID-19 storm. These loans, backed by the government, offered quick and accessible funding to support small businesses in sustaining their operations and retaining employees during unprecedented challenges.
While directors weren’t personally liable for the loans, navigating repayment and understanding associated responsibilities can be confusing. Fret not! We are here with a complete guide, offering essential information about Bounce Bank Loan for Directors.
From understanding repayment options to clarifying directors’ responsibilities, we’ll help you navigate the complexities of BBLS. So keep staying with us till the end!
What Is Bounce Back Loans? What are the key features of it?
In April 2020, the UK government launched the Bounce Back Loan Scheme (BBLS) in response to the challenges faced by small businesses accessing the existing Coronavirus Business Interruption Loan Scheme (CBILS).
Many small businesses found the CBILS process complex and restrictive, with banks often hesitant to lend and even requesting personal guarantees for even small loans.
The BBLS aimed to address these concerns by offering a simpler and faster alternative. It streamlined the application process, provided a 100% government guarantee to reduce risk for lenders, offered low fixed interest rates, and allowed for flexible repayment options.
This “simple, quick, easy solution for those in need of smaller loans” as Chancellor Rishi Sunak called it, aimed to provide much-needed financial support to smaller businesses struggling during the COVID-19 pandemic.
Key Features Of Bounce Bank Loans:
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- Borrowers can access loans ranging from £2,000 to £50,000, capped at 25% of your total turnover.
- Application process streamlined to reduce paperwork and waiting time.
- The government guarantees 100% of the loan to encourage lending.
- No fees or interest payments for the first 12 months.
- A fixed interest rate of 2.5% per annum after the initial interest-free period.
- The repayment term is extended up to 10 years.
- Minimal eligibility criteria to qualify, including being a UK-based business established before March 2020.
Understanding Pay As You Grow Scheme: How It Works For BBLs?
The Pay As You Grow (PAYG) scheme is a support initiative introduced by the government to help businesses with their Bounce Back Loans (BBLs) during the COVID-19 pandemic. It offers flexibility in repaying BBLs, providing businesses with more time and options to manage their finances.
Under PAYG, borrowers have three main repayment options:
1. Extension of Loan Term: Businesses can extend the loan term from 6 years to 10 years, reducing monthly repayments.
2. Payment Holidays: Borrowers can opt for up to six months of payment holidays, allowing them to temporarily pause repayments if needed.
3. Interest-only Periods: Another option is to switch to interest-only repayments for a period of up to six months, reducing the monthly payment amount.
These options are designed to ease the financial burden on businesses, giving them breathing space to recover and grow.
However, it’s important to note that while these options provide flexibility, they may result in higher overall interest payments over the life of the loan. Businesses should carefully consider their circumstances and consult with their lender before choosing a repayment option under the PAYG scheme.
Are company directors personally liable for Bounce Back Loans?
No, company directors are not personally liable for Bounce Back Loans.
Bounce Back Loans are government-backed, providing a safety net for directors. If the business defaults, the government guarantees repayment, protecting directors’ personal assets like homes or cars from lender pursuit.
However, directors must ensure loan funds are used for legitimate business purposes and manage repayments responsibly. Misuse or failure to repay could lead to financial strain for the business, affecting its viability and potentially causing directors to face legal consequences or personal financial hardship.
Therefore, while directors are not directly accountable for loan repayment, they retain responsibility for the loan’s appropriate use and ensure the business’s financial health.
What happens if I cannot repay my Bounce Back Loan?
If you cannot repay your Bounce Back Loan, it’s crucial to communicate with your lender as soon as possible. Depending on your circumstances, the lender may offer options such as repayment holidays, extending the loan term, or switching to interest-only payments through the Pay As You Grow scheme.
However, if you’re unable to reach an agreement with the lender and default on the loan, the government’s guarantee kicks in. This means the government will reimburse the lender for the outstanding balance.
Defaulting on the loan can have serious consequences, including damaging your credit rating, legal action by the lender, and a potential impact on your ability to secure financing in the future. It’s essential to explore all available options and seek professional advice if you’re struggling to repay your Bounce Back Loan.
Alternative Options If You Can’t Repay Bounce Bank Loans
Here are some alternative options if you find yourself unable to repay your Bounce Back Loan:
1. Company Voluntary Arrangement (CVA): A CVA is a legally binding agreement between your company and its creditors, allowing you to repay debts over a fixed period while continuing to trade. This arrangement can provide breathing space by restructuring debts and potentially reducing monthly payments.
2. Creditors’ Voluntary Arrangement (CVL): If your company is insolvent and unable to meet its financial obligations, a CVL allows you to wind up the business in an orderly manner. Assets are liquidated to repay creditors, and any remaining debt is usually written off, providing a fresh start for directors.
These options offer potential pathways to address financial difficulties and provide a structured approach to managing debts. However, it’s essential to seek professional advice to understand the implications of your specific situation and ensure compliance with legal requirements.
Can I negotiate Bounce Back Loan repayment terms?
Under the PAYG scheme, you can get in touch with your bank to explore how one or all of these options might assist in repaying your Bounce Back Loan.
While your bank should be willing to facilitate the PAYG scheme’s repayment choices, don’t anticipate additional flexibility. Further negotiations regarding your Bounce Back Loan repayment are unlikely.
Can a Bounce Back Loan be written off?
Yes, a Bounce Back Loan can be written off under certain circumstances. Like:
Insolvency: If your business becomes insolvent and enters formal insolvency proceedings, such as liquidation, the remaining Bounce Back Loan debt may be written off.
Government Guarantee: If your business defaults on the loan and the lender invokes the government guarantee, the outstanding balance may be written off.
Financial Hardship: In exceptional cases of severe financial hardship, lenders may offer to write off a portion of the Bounce Back Loan debt, although this is less common and subject to negotiation.
Legal Agreement: Sometimes, lenders may agree to write off the debt as part of a settlement agreement, particularly if pursuing repayment would be deemed impractical or uneconomical.
Can I strike off my company with a Bounce Back Loan?
No, you cannot strike off your company (officially dissolve it) while you still have an outstanding Bounce Back Loan.
Here’s why:
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- Companies House: Striking off requires registering with Companies House, the UK’s registrar of companies. They typically object to striking off companies with outstanding debts, including your Bounce Back Loan.
- Lender objection: Your lender, who holds the loan and received a government guarantee, will likely also object to the strike-off. They have a legal claim to recover the debt, and striking off would make it difficult.
Therefore, it is not possible to simply dissolve your company and escape the Bounce Back Loan responsibility. Instead, you should explore alternative options for dealing with your outstanding debt:
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- Repay the loan according to the agreed terms.
- Negotiate with your lender for flexible repayment options.
- Seek professional advice from business advisors or debt management specialists to explore solutions like entering an insolvency process, which can involve procedures like liquidation or administration.
Do I Need To Liquidate My Company With a Bounce Back Loan?
If you cannot repay your Bounce Back Loan and suspect your company is insolvent, closing it through liquidation may be necessary to prevent further losses to creditors. Liquidation is a serious step, so it’s crucial to grasp its implications for you, your company, and your creditors beforehand.
Liquidation marks the end of an insolvent or obsolete company. Once dissolved, it ceases to exist legally, resulting in employee redundancy. Outstanding debts, unsecured by a director’s personal guarantee, are written off.
While Bounce Back Loans don’t require a personal guarantee, other company borrowings might. If you’ve guaranteed any other company borrowing, this guarantee becomes enforceable during liquidation, making you personally responsible for repayment.
In cases of company insolvency, liquidation is often the best choice. Directors must prioritise creditors’ interests once insolvency is known. Seeking advice from a licensed insolvency practitioner at the first signs of insolvency demonstrates a commitment to these duties.
During liquidation, the director’s conduct leading up to the event undergoes investigation, focusing on any wrongful trading, such as neglecting creditor interests when knowingly insolvent.
Get Expert Advice From Vanguard Insolvency!
At Vanguard Insolvency, we provide all directors of limited companies with a complimentary assessment for Bounce Back Loans. Conducted by a licensed insolvency practitioner, this impartial review evaluates your company’s finances and future viability to determine your current position.
We can offer guidance on the short-term benefits of the Pay As You Grow scheme and advice on establishing long-term financial stability, ensuring you can confidently meet Bounce Back Loan repayments.
If there are concerns about misusing Bounce Back Loan funds, we can help assess the situation and clarify the implications in case of insolvent liquidation.
We recognise that seeking professional company insolvency advice is challenging, but ignoring it will only worsen it. We engage with directors facing similar situations regularly; no matter how challenging your circumstances seem, there is a solution. Seeking advice promptly opens up more options for resolution.
Bounce Back Loan FAQs
(I). Are Bounce Back Loans personally guaranteed?
No, the government gave banks 100% security for each Bounce Back Loan under the scheme. This eliminates the need for personal guarantees from company directors. If the funds are used correctly, directors won’t bear personal liability if the company can’t repay the borrowed money.
(II). Can Bounce Back Loans be used to pay wages, buy company property, or pay company taxes?
Certainly, Bounce Back Loans can be utilised for any purpose directly benefiting the company. This could involve covering overheads, settling outstanding debts, or investing in company assets or property. The crucial condition is that the loan must serve business purposes, not personal use. If the loan funds were used personally, there is a potential risk of personal liability if the company struggles to fully repay the loan.
(III). Can a Bounce Back Loan be paid over 10 years?
With the introduction of the Pay As You Grow (PAYG) scheme, Bounce Back Loans now offer a repayment period of up to 10 years. Initially, these loans had a 6-year repayment term, but the PAYG amendment allows companies to extend it. Opting for a 10-year repayment plan nearly halves the monthly repayments, although the overall repayment amount over the loan’s lifespan will be higher.
(IV). When will I have to repay my Bounce Back Loan?
No monthly repayments are required for the initial 12 months after obtaining the Bounce Back Loan, with the government covering all interest and fees. Repayments commence in the 13th month and continue for the loan’s 6-year duration. Under the PAYG scheme, you can defer these monthly repayments for an extra 6 months and extend the total loan term to 10 years.
(V). What happens if I cannot repay my Bounce Back Loan?
If repaying your Bounce Back Loan becomes challenging, seek prompt professional advice. Your bank can utilise the PAYG scheme for short-term relief as your company’s finances recover. However, consulting a licensed insolvency practitioner is crucial if you sense deeper issues. They can guide you through options and provide insights into your company’s situation.
Please contact the Vanguard Insolvency helpline for additional information or guidance regarding your Bounce Back Loan.
I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.