What to Do if Your Company Can’t Pay its Business Bounce Back Loan

The COVID-19 pandemic has caused unprecedented disruption to business operations not only in the UK, but worldwide.

To help businesses affected by the pandemic, the government has introduced a loan scheme called the Bounce Back Loan Scheme (BBLS). The scheme is aimed at small businesses that have been affected by the pandemic and need financial help.

Under the scheme, qualifying businesses can borrow between £2,000 and 25 percent of their total turnover. Loans made out under the scheme are guaranteed by the government and offer favourable terms to small businesses.

If you run a distressed business that’s taken out a Bounce Back Loan Scheme loan and can’t pay it back, it’s important that you’re aware of the options that are available to you, as well as the penalties you may face if you fail to comply with the terms of your loan.

Below, we’ve provided more information about the government’s Bounce Back Loan Scheme (BBLS), alternatives to the scheme and the options your business has if you have received a loan via the scheme but can’t afford to repay it.

What is the Bounce Back Loan Scheme (BBLS)?

The Bounce Back Loan Scheme is a government scheme aimed at small and medium-sized enterprises in the UK that have been adversely affected by the COVID-19 pandemic.

The scheme is designed to assist businesses that have faced a downturn from the pandemic, as well as businesses who’ve suffered financially as a result of the restrictions on trading and movement dubbed the “lockdown”.

Businesses that qualify for the scheme can borrow from £2,000 to 25 percent of their turnover, up to a maximum of £50,000.

100 percent of the loan is guaranteed by the government and there are no fees or interest on the loan for the first 12 months. After the first 12 month period has passed, loans made under the scheme have a competitive 2.5 percent annual interest rate.

Loans issued under the Bounce Back Loan Scheme cover six years, with no repayments due in the first 12 months. If your business doesn’t need to borrow money for this period, you can pay back the loan at any earlier time without any extra fees.

Not all businesses are eligible for the Bounce Back Loan Scheme. In order to apply for a loan under the scheme, your business must be:

• Negatively affected by the COVID-19 pandemic
• Established before the 1st of March 2020
• Based in the UK

Almost all small and medium-sized businesses that fit the above criteria can apply for a loan via the scheme. However, the government also places restrictions on certain industries. Businesses in the following sectors are not eligible to apply for the Bounce Back Loan Scheme:

• Public-sector bodies
• State-funded primary and secondary schools
• Insurers, reinsurers and banks

Businesses that have already made claims under other relief schemes, such as the Coronavirus Business Interruption Loan Scheme, Coronavirus Large Business Interruption Loan Scheme or COVID-19 Corporate Financing Facility, are also ineligible to apply for a BBLS loan.

Businesses that were already facing financial difficulties prior to the pandemic may face certain restrictions if they’re eligible for financing via the Bounce Back Loan Scheme (BBLS).

Under the scheme, your business can spend any money it borrows on anything that provides a financial benefit to the business. However, there are some restrictions, such as on salary raises and dividend payments.

Alternatives to the Bounce Back Loan Scheme (BBLS)

If your business has been negatively affected by the COVID-19 pandemic but isn’t eligible for a loan under the Bounce Back Loan Scheme, you may be able to raise capital through one of the following alternatives:

• Turnaround finance. Turnaround loans and other forms of finance can provide cash to help your business pay its creditors, avoid insolvency and continue trading after a hit to cash flow.
  
  
• Refinancing. Refinancing using your business’s fixed assets can free up cash and let your business pay its creditors. Other options, such as invoice factoring or discounting, may also be available for your business.
  
  
• Other government loan schemes and programs. Other schemes, such as the Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme may be more suitable for your business.

If you believe that your business may be insolvent as a result of financial issues caused by the pandemic, please contact us. Our team of insolvency practitioners can tell you more about the options that are available for your business.

What if Your Business Can’t Pay Back its Bounce Back Loan?

Loans made out under the Bounce Back Loan Scheme (BBLS) receive 100% security from the government. As a company director, you do not need to provide a personal guarantee to raise capital via the loan scheme.

For the first 12 months, your business does not need to make loan repayments. Following the first 12 months, your loan balance will be subject to a competitive 2.5 percent annual interest rate.

If your business fails during this period and you’re unable to repay the loan, any responsibility for the loan is solely that of the company. As long as you have acted legally and in compliance with your responsibilities as a company director, your personal assets will not be at risk.

If your business becomes insolvent after taking out a Bounce Back Loan, it’s essential that you take action as quickly as possible. Depending on your business’s financial situation, one of the following options may be appropriate:

• Proposing a CVA. You may be able to propose a Company Voluntary Arrangement (CVA) to your creditors. This will shield your business against any legal actions from creditors and, if successful, allow you to pay back your creditors over time.
  
  
• Entering into administration. In this insolvency procedure, an administrator will be appointed to operate your business with the goal of facilitating a turnaround. You will need to temporarily give up control of the business as a company director.
  
  
• Using pre-pack administration. The pre-pack administration process allows you to purchase company assets at fair market value and continue operating under a new company. This may help you preserve your business and its relationships.
  
  
• Voluntary liquidation. If your business isn’t viable, you can close the business using the voluntary liquidation process to repay creditors. Entering into liquidation voluntarily may lower your risk of facing charges of wrongful trading as a company director.

Contact Us For More Information

If your business has borrowed money under the Bounce Back Loan Scheme (BBLS) and can’t afford to pay it back, it’s important that you act quickly.

As specialists in insolvency, we can help you learn more about the options that are available to your business, from refinancing to insolvency procedures. If appropriate, our team can assist in the insolvency procedures and alternative refinancing options listed above.

To discuss your situation and learn more about what you can do, please contact us on 0800 9717185 or send us an email to schedule your free private consultation.