Paying back my Business Bounce Back Loan

There is not a great deal of information ‘out in the wild’ about what a business bounce back loan even is, let alone how to repay one. Essentially this loan is a government-backed scheme intended to allow sole traders and small to medium-sized business access finance quickly during the current pandemic.

Business bounce back loans are unsecured, meaning assets are not at risk, but the lender is responsible for paying back 100% of the loan.

If you haven’t applied for a business bounce back loan, there is still time as applications are still being accepted until the very end of March 2021. The government page on the subject is quite sparse, but scrolling to the end will reward you with a button that will take you on your first step in making an application. To save a little time though, your first step is finding an eligible lender.

The list of accredited lenders that are working with the government on the business bounce back loan scheme is quite long all things considered, but be sure you only apply for this type of loan from one of the listed lenders.

  • What can a Bounce Back Loan be used for?

The bounce-back loan is related only to business finance. This means that it can be used to pay staff wages (including directors), business rates and property rent(s). it can also be used against any monthly business costs and overheads such as internet bills if your business relies on it, phone bills, electricity bills etc.

Company directors can also use the bounce back loan to refinance other business debts, to lower related interest costs.

Money loaned from the scheme cannot be put into a personal account to accrue interest. It is strictly to be used for business-related purposes. Using the bounce back loan for anything else could be seen as not “acting reasonably and responsibly”. If this is found to be the case, at any point, then the owner could personally be liable if the company ever enters either compulsory or voluntary liquidation.

  • What if you cannot pay back a business bounce back loan

Unless there is a crystal ball close to hand, knowing how long the current crises was going to last when the loan was taken out (even if you do it now, and in light of the Government end of lockdown roadmap – those quoted dates are not set in stone, remember, it is a best-case scenario only).

This means that the loan may have gotten you to this point but now the business is in trouble again. In this situation it could well be that the business simply will not be able to repay the loan, so what happens then?

If it ‘just’ the loan that your company is having trouble with, there isn’t too much to worry about. It has been reported elsewhere that the loan allows for ten years to repay, but this isn’t strictly true.

No payments are due for the first 12 months, and the loan itself is for 6 years (not 10, as misleadingly stated on other websites). However. Shortly before the first payment is due, your chosen lender may contact you with three options:

  • Extend the loan for an additional four years if you foresee payment issues.
  • An option to make interest-only payments for 6 months (this can be done a maximum of three times).
  • And an option to pause all payments for an extra 6 months on top of the original12, and this can only be done once.

While the above is true, if the inability to repay this loan is symptomatic of deeper cash-flow issues, and other debts are piling up, then you may have to look at other options such as:

  • HMRC time to pay arrangements
  • BBL (Business Bounce Back Loan) payment holidays

In more serious, dire situations then a restructure of company debts and costs by the way of an insolvency mechanism may well be required. If your company is no longer viable, in other words, can no longer function due to financial issues, then it must be placed into voluntary liquidation.

  • Can a bounce back loan be written off?

Because the loan was issued to the company, not an individual (even if you are the director and sole shareholder), then when the company ceases to exist due to insolvency the debt is written off.

However. You need to be aware that if you used the bounce back loan to repay any personal loans or debts, or paid business debts ‘preferentially’ because a business debt was to a friend, then this may well be reversed by a liquidator. What does this mean, if this happens? It means that you have not used the loan for the purpose in which it was issued and you may find that you become personally responsible for paying it back.

A liquidator could also decide to investigate exactly where the money went and could decide that the money was stolen, by you, from the company. This could be interpreted as asset misappropriation fraud, which is a criminal offence.

As well as possibly being disqualified from being a director of a company ever again, you are likely going to end up in an interview room with the police if asset misappropriation fraud is suspected.

In short, don’t use a bounce-back loan for anything other than its intended purpose. It just isn’t worth it.

  • To conclude

A Business Bounce Back loan can be a lifeline for businesses that genuinely need it, realistically expect to be able to pay it back and the loan is used for its intended purpose. If you do need the bounce back loan to help your business that has been adversely affected by the coronavirus pandemic, and you haven’t applied yet, then do so. You have until the 31st of March, 2021, to get the application in. Don’t delay any further.

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