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Guidance for directors who have defaulted on Bounce Back Loan payments

In May of 2020, the Bounce Back Loan Scheme (BBLS) was launched to assist businesses during the financial hardships caused by the Covid-19 pandemic. This scheme improved businesses’ cash flow and allowed them to continue their daily operations, but many have had difficulties repaying their Bounce Back Loans. 

The government’s guarantee for the program was given to the lenders, not the businesses. If you have received a demand letter from your bank regarding your Bounce Back Loan, you may be curious about the next steps to take.

The corporate structure provides personal liability protection


As a director of a company, it’s important to be aware that personal liability for the company’s debts is not a concern. The corporate structure establishes the business as a separate legal entity, and in most circumstances, its finances are separate from those of its directors.

The “veil of incorporation” offers protection for business borrowing, unless there has been an abuse of the loan. So what are some examples of ‘misuse’ in terms of the Bounce Back Loan Scheme?

What actions are considered as misuse of a Bounce Back Loan?

Here are a few examples of how the Bounce Back Loan could be misused:

Personal Use of Funds


The Bounce Back Loan was designed to provide economic support to businesses, such as paying suppliers, covering employee salaries, paying commercial rent, and supporting daily operations. Any use of the loan for personal purposes would be considered misuse.

Misrepresentation of Business Turnover


The maximum loan amount for the Bounce Back Loan was based on 25% of a business’s turnover. Misrepresenting the turnover on the loan application, either by overestimating or understating, would go against the rules of the scheme.

Transfer of Funds to Third Parties


The funds from the Bounce Back Loan must be used solely for business purposes. Transferring the funds to a family member or third party would be a violation of this requirement.

Is there a possibility that banks are sending out demands for payment without sufficient cause?


In some cases, banks like Santander may send out letters to chase arrears on Bounce Back Loans, with the intention of gauging a company’s willingness to pay. These letters appear to be automated and are usually sent after three months of missed repayments.

If you have received a Bounce Back Loan demand letter from your bank, it is wise to assess whether it could be a speculative letter. However, it is recommended that you seek professional advice from a licensed insolvency practitioner (IP).

The IP’s expertise is crucial in making an informed decision, as they will take into account your business’s specific circumstances when evaluating the letter.

Business loans typically do not hold directors personally responsible


The financial landscape in the wake of Covid-19 is intricate, but it is important to understand that, in typical circumstances, limited company directors are not responsible for repaying business funding.

However, if a business becomes insolvent, the protection offered by the corporate business structure may be lifted if evidence of misconduct or misallocation of funds is found. The letter you have received from your bank may just be a speculative effort to recover the funds.

Seek professional help


Receiving a letter of demand regarding your Bounce Back Loan is a matter that should not be ignored. Seeking professional advice is crucial to understand your options and potential consequences. As insolvency experts, InsolvencySupport.co.uk can provide reliable guidance in such situations.

We encourage you to reach out to us and schedule a free, same-day consultation. With a wide network of local offices throughout the UK, we are always close at hand to offer the professional support you require. Our aim is to help you make an informed decision and take the appropriate steps towards a solution.

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